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Agri Commodities Update: too much of a good thing

European wheat prices are falling as they pay, rather than profit, from for their proximity to Egypt while prices elsewhere gain

Currencies

The US Dollar was volatile on Thursday: a sharp fall in European hours was later unwound.  The result is that the greenback has not really changed all that much against the other agri-exporter currencies.  The Australian dollar followed that broad pattern to shed a quarter-cent and start today at 76½¢. 

Grains & Oilseeds

  • US wheat futures made sharp gains on Thursday.  Paris prices, by contrast, just keep on falling to new season lows.  Currencies have some impact on that on a day-to-day basis but the Euro, having oscillated in a modest range since at least February, is no set of concrete shoes.  Egypt’s desire for ergot-free wheat is more of an issue for EU and Black Sea origins because Egypt is a bigger customer for them.  Market demand for feed remains an alternative outlet for US wheat.
  • ASX East January wheat futures gained 1½$ to finish Thursday at 232½$.  The overnight moves in the Aussie and global wheat futures have taken material slice off Australian basis.  And it might be enough to prompt to some export buying.  The trade’s fears about new crop quality could prompt some further price gains today too.
  • Corn futures continued to climb Thursday.  Short covering ahead of next week’s WASDE update dominated the day’s trading.  Analysts are expecting to see the USDA trim its forecast for US corn yields from 175.1bpa to 172.6bpa.  The market has been sceptical of those yield numbers since they were first announced though and, in our view, has now priced much of that in.  While there may be an initial kick higher if yield numbers come in lower, we expect that the impending US harvest (which will still be large) will start to put some seasonal pressure back into pricing.
  • Soybeans were the laggard on Thursday.  Strong gains in wheat and corn added some price support early on but, with the USDA’s next WASDE report looming, some investors appeared to get cold feet.  Analysts are looking for the USDA to raise their US soybean yield forecast from 48.9bpa to 49.3bpa.  The lack of fresh export sale announcements on Thursday probably also contributed to the less buoyant mood.  Canola futures, by contrast, gained strongly.  Worry over Australian canola continue as many crop areas have received too much rain.

Cotton

US cotton futures were mostly weaker on Thursday.  ICE December finished a shade lower after a day of low volume, choppy trade.

Sugar

Sugar futures prices were a shade lower after Thursday's trading.  Spreads continued to grind lower but the day was otherwise unremarkable.  Trading volumes were again large as the market shifts the locus of trading activity to the March 2017 contract from the soon to expire October contract.

Dairy

NZX WMP futures posted a handful of small gains and losses on Wednesday.  The lack of broad direction in prices though masks the level of activity in the market – aggregate trading volumes soared on the day.  The total number of WMP contracts that have changed hands this morning has also already exceed 4,000.  The WMP futures market, which has been slowly maturing for several years, now looks to have awoken.  The dairy market’s recovery throughout this season is likely to further aid that process.

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.research.commbank.com.au.

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

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