A surging greenback was a strong headwind on a day of otherwise good news for US$ grain and oilseed prices.
The US Dollar rallied sharply on Thursday. The greenback’s gains mean the Euro, and the dollars of New Zealand and Canada, are at or close to making significant lows. The Brazilian Real and the Australian dollar are more mid-range but were nonetheless weaker overnight. The Aussie starts today a quarter cent or so lower at just over 75¾¢.
Grains & Oilseeds
- Wheat futures again had mixed day. Minneapolis spring wheat futures are buoyant. They managed to remain all but unchanged. Their winter wheat cousins in Chicago and Kansas plunged. A stronger US Dollar and lower corn prices were among the reasons. The spread between Chicago wheat and corn was largely steady on their similar price falls. Again, US wheat demonstrates its feed anchor. US export data was largely friendly. Sure, Soft Red Winter exports remained soft – no news in that. Exports of (much larger) Hard Red Spring (HRS) and Winter (HRW) crops, remain strong. HRS exports in particular remain on track for a forecast upgrade – a reason why Minneapolis prices are buoyant. On 2017 crops, the watch-listed US and Black Sea regions continue to have diverging outlooks. Forecasters expect the Black Sea regions to get some rain over the next week or so. Forecasters are though now more confident that the dry parts of the Ukraine at least will get enough rain to give newly planted crops a boost. That would substantially shrink the size of the region on watch. In contrast, forecasters continue to expect little rain in the dry western parts of the US hard red winter wheat region. Soil moisture is more likely to decline than anything else over the next week. The question mark over the US HRW crop is slowly taking on a harder form. Rainfall now will be useful but we will soon enough reach a time when falling temperatures will make any rainfall moot.
- ASX East January wheat futures edged a half-dollar higher on Thursday to close at 236$. Overnight action has slimmed Australia’s basis sharply. The trade’s worries about wheat quality mean the market is not so obviously a “sell” today so prices might only weaken a shade. Weather forecasters continue to expect warmer and drier, but not dry, turn in south-eastern grain regions that should aid drying near-term. Crops in northern reaches of eastern grain regions are on track to get suitable maturing and harvest weather.
- Corn futures prices experienced sharpish falls on Thursday. Fieldwork has been slow in the western Corn Belt this week, but the lack of disruptive rain in next week’s forecast is weighing on prices. Last week’s US export sales were very high, at 2.6mmt. More than half of the total though was attributed to a single purchase by Mexico – of which the market had already been aware – and so it drew little reaction on the day. Brazil’s crop agency, Conab, offered up its first forecast for the 2016/17 season. Conab expects production to rise to around 83.1mmt – up 25% on last year’s drought ravaged crop. While the US may be awash with corn, Brazil is not. The motivation for Brazilian growers to increase production is obvious, but the end result will depend on Mother Nature. Brazil’s crop areas to the south have favourable enough soil conditions for planting and development, but Mato Grosso and its surrounds are developing a drier pattern that will need to be monitored. Brazil’s Agriculture Ministry is clearly worried - at its behest, the country’s bio-tech panel yesterday approved two US GMO corn varieties for import.
- Soybean futures were little changed Thursday despite a couple of attempts to break higher. While rally attempts are being thwarted by the advancing US harvest, the demand side appears to be putting a floor in the market. Last week’s drift below 9½$ prompted some aggressive buying interest - US export sales for last week were well above the trade’s expectations. Indeed they were the highest weekly volume reported in three years. A fresh sale to unknown destinations was announced on Thursday too. The market was not expecting to see any big flash sales this week given China, the big buyer, is on holiday this week. In South America, Argentina should finally see some regular rain to support the planting and establishment of summer crops. Brazil’s Parana region is sporting good soil moisture levels, but conditions in Mato Gross and surrounding areas may deteriorate with a return to high temperatures forecast for this weekend.
US cotton futures finished a shade lower on Thursday. About half of the early drop though was offset though by a late recovery which looked to have been interrupted only by the market’s close. The path of Hurricane Matthew is still up for debate and prices continue react to any changes in the forecast. The storm is expected to bring heavy rains to the US southeast on Saturday. The potential for serious damage to cotton crops probably greater than it was in the case of Hermine because the vast majority of cotton now has open bolls. In Australia, drier conditions in northern NSW and Southern Queensland this week will have allowed for some planting to occur. Forecasters though have flagged the potential for another storm system towards the end of their two week outlook. Confidence in the model is low this far out but the situation will warrant close monitoring. Australian crop locations now need drier and warmer weather for a favourable planting and development.
Sugar prices slumped on Thursday. Sugar has been so volatile of late that a "slump" only gets prices back to the middle of their range. Trading volume continues to be limited, amplifying the swings. 2017 and 2018 had progressively more modest falls. And the drop in the Australian dollar has offset those smaller falls. 2017 prices, for instance remain not far below 600A$/t.
Australia’s EYCI gained another 3½¢ Thursday to finish at 723¼¢/kg cwt. The eastern young cattle market is sitting just a whisker below record levels. Domestic supply shortages remain in the driver’s seat - yesterday there were reports of Victorian processor sourcing cattle out of WA saleyards. We think restocker support can continue to buoy prices for younger, lighter cattle, but are unsure how much longer current cattle-beef price relationship can hold up in the more “downstream” segments of the market. Medium and heavy steer prices, for example, have come under a bit of pressure in the past week or so. In the beef market, quotes for Australian imported 90CL beef in the US have, as expected, moved lower to restore basis to slightly more competitive levels. Australian beef is still be no means cheap though relative to US domestic product.
NZX WMP futures prices had a comparatively quiet Thursday. The exchange marked mid-2017 prices lower but the sell-off seems to have blown itself out for now. The gap between GDT and NZX prices remains large enough though for the futures to be a shade positive about the outlook.
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