Or at least markets expect it too – there was that Brexit surprise a while back. Markets broadly are freeing themselves of worrying about a Trump Presidency.
The agri-exporter currencies mostly continued to strengthen on Tuesday (the Euro remains an exception). Currencies, indeed financial markets in general, seem to be relieved of, or perhaps no longer distracted by, the prospect of a Trump Presidency. The result will unfurl during the Asian trading day. With any luck it will be early – we are probably not alone in being are bit over the US election thing. The campaign felt as if we had been strapped to chair so as to be unable to look away from a screen that is showing a two-person Big Brother special where the housemates are not on speaking terms. Markets newfound freedom to focus on their own issues has unleashed some major moves. The Australian Dollar is a good example. The Aussie is following the lead of higher hard commodity prices and has rallied sharply, gaining a quarter cent. The Aussie starts today at 77¾¢, the highest since April. Traders will continue under pressure to lower $A agri-commodity prices.
Grains & Oilseeds
- Wheat futures prices rallied sharply on Tuesday. Russia's agriculture ministry cut their forecast for exports by 2mmt to 28mmt. In some countries that would simply be a forecast, FYI market. From Russia though it carries more weight given their policy history. The cut is a confirmation for the market of what it suspected might be the case: Russia’s milling grade wheat supply has been run down to low levels. Export price quotes from Russian Black Sea ports have climbed about 13US$ since late September. The early stages of that rise looked simply like the market recovering from Egypt’s ergot denial. Prices though kept on rising to hint at dwindling supply. The export news cheered US futures because now Russia has joined the EU in moving to the sidelines as opportunistic (rather than systematic) seller. The US (and others) will now have less competition in meeting remaining demand. The US HRW wheat region saw a little rain on Monday, but not really enough to make a sustained rise in the moisture needle. Forecasters continue to expect dry conditions in these dry regions.
- ASX East January wheat futures dropped a couple of dollars on Tuesday to end the evening session at 235$. The higher Aussie was a headwind in harvest context. The Aussie is stronger again today but has been more than offset by the rally in global prices overnight. Russia’s export announcement is relevant for Australian export prospects too. The trade will not be able to pursue marginal sales in the Asian region with Black Sea origin wheat any longer. And more opportunity for US wheat across the Atlantic means less will find its way across the Pacific.
- Corn futures rallied on Tuesday. The December contract broke through its 100-day moving average in doing so. Volumes traded (on the front contract) also spiked to the highest level since June. Weeks of modest volume, range-bound trading have given way to a last minute scramble to take up positions ahead tonight’s WASDE report. And importantly, the wheat complex followed corn higher yesterday so corn’s competitive position in the feed market did not deteriorate with the rally. In South America, weather forecasts remain favourable outside some flood affected areas in Argentina. Vilmorin, a large seed producer, has said that its sales of seed corn for Brazil’s first crop have more than doubled, with orders for the second crop up 350%. Brazilian corn prices are very high due to tight domestic supply. High prices will, naturally, encourage more planting. Vilmorin’s announcement is further confirmation that Brazil will, weather permitting, be looking at a large corn harvest in 2017.
- Soybean prices were higher on Tuesday, pushing through technical resistance to close back above 10$. Another rally in the rival palm oil market was helpful context. Continued news of strong US soybean sales to China though remains the bedrock of support. The US’ window of export supremacy though may be coming to an earlier than expected end. Planting in Brazil’s Mato Grosso and Parana (the two largest soybean producing states) is already around 80% complete – well ahead of the normal pace. Weather permitting, the rapid pace of planting means Brazilian supplies could hit the export market in significant volumes by January. By contrast, planting in Argentina remains sluggish. Weather forecasters’ models have reduced the amount of rain expected today in flood affected areas. However more rain is slated for the coming weekend so the potential remains for the problem to worsen.
US cotton futures finished a touch higher Tuesday. The market rallied sharply in early trading but, unlike grains and oilseeds, cotton could not hold on its gains. The weak close is perhaps a telling sign. Analysts expect no changes to the US balance sheet and an (insignificantly) small lift to global end stocks in tonight’s USDA’s update, but the market is not trading with much confidence. Investors hold a large long position so the market could be vulnerable to liquidation if tonight’s report does not go their way.
Sugar futures prices fell on Tuesday to end the day near 22¢. Spreads were little changed. The south Brazil weather watch continues. The region needs to stay dry enough to allow crushing to continue at an economic rate. Weather forecasters suggest this is likely to be the case as they expect sub-par rainfall in the region over the next week or two. The weather also only needs to stay dry enough for long enough. The market will be ready to make a call on market balances for early 2017 once the start of December begins to fall within a reliable forecasting horizon. That should happen in a week to ten days.
Australian spot cattle prices were lower again on Tuesday. Year-to-date (Jan-Sep) Australian cattle slaughter is tracking 20% below last year’s pace. Beef production though is down by a little less (back 18% over the same period) as the increased availability of pasture and grain has supported a decent jump in carcase weights. In the US markets, live cattle futures erased all of the previous day’s losses. The US Meat Export Federation reported a 27% year-on-year rise in US beef exports for September. An impressive jump to be sure, though year-to-date exports are only up about 8% year-on-year. The September rise though does signal that US prices have hit levels low enough to ignite additional overseas interest. Prices traded even lower through October too so we can reasonably expect that trend to continue.
NZX WMP futures prices fell sharply on Tuesday and have continued to weaken in early trade today. The falls owe at least something to the NZ Dollar’s surge. The Kiwi has jumped 2½¢ in a little over a week – something that is bound to hurry selling from milk processors in NZ (and perhaps Australia too).
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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.