ABARES, Australia’s official crop forecaster, expects a huge Australian wheat crop – and the new record is forecast to happen largely in the east.
The agri-exporter currencies all made notable gains on the US Dollar on Monday. The Euro and Canadian Dollar made noteworthy highs. The Australian Dollar’s gain didn’t sustain enough to do that. The Aussie starts today at just under 74¾¢.
Grains & Oilseeds
- Wheat futures had a very mixed Monday to end with a couple of notable moves. Paris prices dived as the Euro surged. Chicago has a second day of sharpish gains. Weather forecasters are expecting snow to precede sub-zero temperatures in vulnerable US hard red winter wheat regions. We might, if enough snow falls, be able to scratch this region off the watchlist.
- ASX East January wheat futures bounced off season lows on Monday, gaining 3$ to close at 214$. We suspect those gains will be lost today, and then some. ABARES has published a huge revision to their wheat crop estimate for 2016. ABARES now expects Australia’s wheat crop to be 32.5mmt, much higher than their previous estimate of 28mmt. That would be the largest crop ever by big margin. The previous largest was 29.9mmt in 2011. And, like 2011, the main reason for the large crop is high yields. At 2½t/h that also bests the 2011 record by a big margin. The states’ different contributions are probably most remarkable aspect of the report: the extra wheat is all in the east. Australia, the conventional wisdom would suggest, is unlikely to harvest a record wheat crop unless WA does so too. The unconventional has happened though: WA is nowhere near a record but Australia has smashed the record. The market was probably expecting somewhere near ABARES’ previous forecast. And only a few optimists were expecting anything like the new one. So this will be something if a surprise for the market today. We had thought the crop, especially after CBH’s downgrades in WA (which are well below ABARES estimates), was going to be around 27½mmt. On that basis we were a little sceptical about recent falls in prices. An extra 5½mmt of wheat though is obviously a “game changer”. In light of these new ABARES estimates we will have to re-assess our price forecasts.
- Corn futures soared over 3% on Monday. Buying activity picked up with prices down near two month lows and less pressure from the US Dollar. US corn export inspections were also comfortingly large. In South America, Brazil continues to enjoy ideal weather (analysts are expecting the USDA to up the Brazilian corn crop by 1½mmt later this week), while pockets of southern Argentina are slowly becoming more worrisome. Argentine corn planting benefited from the drier weather through November but the crop now needs some rain or it will run the risk of being poorly established.
- Soybean futures rallied strongly on Monday. Palm oil continues to provide spillover strength to other veg oils on concerns that Malaysian output will not bounce back as quickly as expected. Weekly US soybean export inspection data remains supportive (for now at least) and the USDA reported a big Chinese purchase on Monday. Continued dryness in southern Argentina may see some weather premiums creep into pricing this week. The USDA also updates it crop forecasts later in the week. Analysts are expecting to see little change in Brazil’s soybean crop and a slight downgrade to production in Argentina. Canola futures ended Monday’s session a touch lower as traders and investors positioned themselves ahead of tonight’s Statistics Canada’s final crop report. Despite the excessive rain and harvest delays through Western Canada, analysts are still thinking the 2016 harvest could beat last year’s 18.4mmt crop.
US cotton futures were either unchanged or a shade weaker in quiet Monday trade. Australian forecaster ABARES released its December crop estimates this morning. The bureau has upped their expectations for Australian production by 150k tonnes, to 1.03mmt. That would be the second largest cotton crop on record and well above the USDA’s current forecast of 871k tonnes. The increase was largely on the back of higher dryland sowings as soil conditions were very favourable during the planting period. Conditions are now trending a little too dry, but forecasters say Australia’s cotton areas should see rainfall in fits and starts over the next couple of weeks. In the US, late season harvest delays are expected to diminish as the week progresses.
Sugar futures prices posted modest falls across all seasons on Monday. The New York March contract traded below closed at five-month lows below 19¢. The trading pattern suggests investors continue to sell down their long. We think the end is nigh for that process but there is still potential for falls until it does halt. We suspect more buyers to emerge with the March contract below 19¢.
Australian saleyard cattle indicators opened the week reasonably steady. Last week’s eastern states cattle slaughter came in at a solid 130k head. The excessive heat last week though did draw around 6% more cattle forward from NSW. By contrast, Queensland slaughter eased 6% - perhaps an early indication that the impact of the forecast dry summer may be capped by the severe depletion of the northern cattle herd. Consequently NSW processors have lowered their direct quotes for the week ahead, while southern Queensland grids have remained firm. Contrary to reports circulating yesterday, Brazil’s ministry has now issued a clarifying statement saying Japan will only open trade to processed Brazilian beef, not “in natura”.
NZX WMP futures continue to gain on Monday. The first five WMP futures prices for 2017 now have an average premium of almost 150US$ to the previous GDT auction. So the futures are foreshadowing a 3-5% rise in WMP prices at the tonight’s auction.
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