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Agri Commodities Update: dairy checks reality

Dairy prices jumped again in the GDT auction overnight.  WMP prices made suitably modest gains while other products – butter, SMP and AMF – all made hefty catch-up gains.


The US Dollar fell sharply against the other agri-exporter currencies on Tuesday.  Traders will be prompted to re-price quickly given the size of the move – the corresponding moves in US$ prices will determine how much.  Only the New Zealand Dollar, now at year-plus highs, has reached significant levels on the rally.  The Australian Dollar has gained about a cent.  The greenback’s drop last night accounts for about half of the gains.  The rest came earlier when, yesterday, the Reserve Bank of Australia (RBA) left cash rates as 1.5%.  More importantly, the RBA made no noises to suggest they would cut rates again.  Our view is that they will cut again.  The Aussie starts today at about 76¾¢.

Grains & Oilseeds

  • Wheat futures were modestly lower on Tuesday.  The small declines in the context of a weaker US Dollar are going to make US wheat more competitive and pressure prices somewhat in other origins.  The market continues to look like it is becoming more stable.  Kansas and Chicago September contract expiries look to be happening in an orderly fashion – no sign of a late outbreak of wheat being dumped onto the market.  The US’s heavy supply can has come to rest further down the road, to December, when the issue will be revisited.  The task is unlikely to be any easier then though given that there will be some northern spring and southern winter wheat to compete with.
  • ASX East January wheat futures were unchanged Tuesday at 231$.  Overnight trading in wheat and currencies is something of a negative because it has, notionally, pushed basis higher.  The extra though is unlikely to weigh too much on Australian prices too much (for now anyway).  The trade has some well-founded fears about grain quality in eastern parts of Australia’s winter grain region that might mean there are few willing sellers.
  • Corn futures were little changed compared to where they closed last Friday.  US corn conditions were reported to have slipped one percentage point last week.  The report’s impact though was limited given 74% of the crop remains in good to excellent condition.
  • Oilseed prices diverged on Tuesday.  Soybean futures made sharp gains.  The US Midwest is likely to receive more rain this week than had previously been forecast.  While meteorologists have downplayed the impact on crops, plenty of market chatter about delays to maturation and harvesting is doing the rounds.  As of last week though, 73% of the US soybean crop remained in good to excellent condition.  Large advances in the Canadian Dollar forced canola prices lower on Tuesday.  Harvest pressure is also looming, with Canada and Australia both expected to produce big crops this season.  Questions about quality though have begun to emerge.  Forecasters say NSW canola areas will continue to see too much rain this week.


Cotton futures rallied on Tuesday.  Market chatter remains focused on the impact of Tropical Storm Hermine over the weekend.  The USDA reported cotton crop conditions unchanged as of the end of last week, with 48% of the crop in good to excellent condition.  Tuesday’s moves though indicate that the market is anticipating a downgrade in next week’s report.  While early reports suggest some individual areas have been hard hit, forecasters continue to expect that permanent crop losses are not likely to be large overall.


Sugar futures prices were little changed on the day. Spreads though were largely weaker - mostly modestly.  The October-March spread by contrast weakened sharply into a still more remunerative carry that will funnel sugar into 2017.  Full carry seemed, for a day or so, to be absorbing the quickening end-game for the October contract.  Now though the market is demanding more and more to take investors out of their huge long positions.  Sub-carry discounts looks to us like a Rubicon-crossing – hard to come back from and signalling further declines.  The trade might eventually absorb all that October selling but right now the quantity, at about 3.8 million tonnes, makes us sceptical were are near that point.


NZX WMP futures continued to idle ahead of last night’s GDT auction, finishing Tuesday little changed.  The physical market impressed once again, with GDT prices climbing for the third consecutive event.  WMP prices made solid gains of 3.7% (though did undershoot expectations).  Sharp catch-ups from other products however (AMF and butter both rallied ~15%, while SMP gained 10%) pushed the overall GDT index 7.7% higher.  We note that, while global dairy production is falling rapidly, supply is not yet tight.  Consequently we expect market to enter a brief period of consolidation as it awaits further confirmation from NZ spring production data.  The cumulative gains in the dairy market so far though have continued to push the NZ Dollar to new levels.  The Kiwi starts today at highs not seen since May last year.

Learn More

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This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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