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Agri-commodities update: Who’s afraid of the big, bad WASDE?

Grain, oilseed and cotton markets are little changed, as they hunker down ahead of what might prove to be a highly influential crop report this Wednesday night.

Currencies

The US Dollar was little changed on Friday.  The greenback remains not too far off recent lows against the other agri-exporter currencies.  The Brazilian Real remains an exception.  The Australian Dollar conformed to the pattern on Friday and was little changed at 76¾¢.  The Aussie has started today flaring higher to just under 77¢.

Grains & Oilseeds

  • Wheat futures were little changed on Friday.  The grain markets have gone quiet ahead of the USDA’s WASDE report on Wednesday evening.  The report is unlikely to contain any big surprises from the wheat market itself.  News about the US corn crop though can have an influence given that feed is an important use of wheat in an oversupplied market (see below for discussion).  The south-west corner of the US HRW wheat region saw a little rain, as forecast, on Saturday.  We will need the rest of the weekend’s data to come to hand to assess whether there has been enough rain to get the area off the watchlist.
  • ASX East January wheat futures fell 3$ to end Friday’s evening session at 236$.  The falls restored some value to Australia’s basis but it remains on the high side of recent experience.  Winter crop areas are likely to see some rain in the east but not enough to create sustained is issues for drying and field work.
  • Corn futures traded a sideways pattern much of Friday.  Markets typically remain range bound ahead of the USDA’s updates, however Tuesday’s US election might see pre-WASDE trading become more volatile than usual.  Analysts are, on average, expecting US yields to come in a shade lower.  A few though are now going against the grain and suggesting there might be a surprise upgrade on Wednesday night.  The market has been trading with a “lower yields” mindset over the last few weeks.  And Friday’s positions report indicated that investors have also acquired some additional longs.  Any upgrade to US corn output this week would likely have quite negative price implications.  In South America, slow Argentine corn planting will have benefited from some drier weather over the weekend.  More rain is in the forecast for this week though so it will remain on the watchlist.
  • Oilseeds prices finished little changed in cautious Friday trading.  Analysts are, on average, expecting the USDA to bump up their US yield estimate to ~52bpa.  The positions report though suggested that investors have turned a touch more bullish, so clearly have some confidence that they will see supportive export numbers.  They also expect to see a ½mmt trim to Argentina’s soybean production given that many producers will still face the 30% tax on exports this season.  Ground conditions in Argentina will have benefitted from a drier turn over the weekend.  However forecasters warn that the improvement may be fleeting – the wettest areas around northern Buenos Aires will trend wetter again this week.  Brazil will also experience some planting delays due to rain.  Canola futures saw modest losses on Friday on investor profit taking.  Weather models are pointing to improved conditions in Canada’s Prairies, with warmer and drier weather slated for the next ten days (though forecasters think some northern areas could need even longer to sufficiently dry down).  Alberta reported that its harvest progressed just two percentage points last week and is now ~70% complete.  The Canadian Dollar has opened sharply higher this morning, which may lay the groundwork for more profit taking today.

Cotton

US cotton futures had a third day of going nowhere novel.  The weekly positions report showed a similar degree of inertia– investors had made very few changes to their positions in the week to last Tuesday.  The USDA’s next outlook will be out on Wednesday night.  Traders and investors will be looking for evidence that the market has made some additional progress in its transition towards a tighter supply state.  The big unknown will be how much near ideal conditions in the Southern Plains will have offset October’s hurricane related losses in the Southeast.  Forecasters say unwelcome rain fell across West Texas over the weekend and should continue for the next few days.

Sugar

Sugar futures prices posted sharp gains to end the week.  The market is perhaps forming a new range at around 21¢.  The positions report on Friday showed that investors has indeed been the seller through the big falls of the previous week or so.  The position is still large and so retains the potential to powerfully influence prices.   South Brazil’s weather remains a point of focus.  Weather forecasters expect some more rain in in Sao Paulo and surrounds this week.  The market will be watching to see that it doesn’t become too heavy for too long and threaten an abrupt end to the crushing in Brazil.  Australia’s cane regions had some rain late last week to worry about too.  The Australian industry has enough cane to crush up until Christmas (i.e. unusually late) in some regions so they too are hoping for dryish weather.

Cattle

US live cattle futures gave up ground for the third consecutive day.  After solid gains in Wednesday’s online Fed Cattle Exchange, traders were expecting to see those prices continue in the physical market.  Futures fell back when that did not turn out to be the case.  US weekly cattle slaughter came in at 606k head – a touch lower than the previous week but still tracking levels too high to be considered supportive.  Friday’s positions report showed that investors spent the week to last Tuesday buying back a chunk of their short position – a sign that the market thinks the lows are now in the rear view mirror.  However the investor long position has remained little changed, so perhaps that confidence does not extend as far as think the market can support materially higher prices.

Dairy

NZX WMP futures prices finished last week with a mix of rise and falls.  Production news continues on the weak side as lower production is reported in Ireland.  Northern Ireland’s milk production in September was down by about 6½% on last year.  The Republic’s milk production is down by about 3½% in September – a smaller fall but probably more significant.  The Republic produces a lot more milk.  And the Republic is likely to prosper long-term, including producing more milk, as the EU progressively deregulates.  Consequently we have a producer that is materially cutting production where there is no deregulatory overlay to speed the fall in production – rather it is a response to price falls.  The re-balancing continues.

Learn More

For a more detailed snapshot of market conditions, or to get the daily market update direct to your inbox daily, visit Commonwealth Bank.

Important Disclosures and analyst certifications regarding subject companies are at www.commbank.com.au/corporate/research. This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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