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Rain salves Southern Plains cotton pain

Cotton prices fell abruptly as rainfall around the US Southern plains eased the worst fears for the US cotton crop.

Currencies

The US Dollar weakened modestly against most currencies on Tuesday.  The Brazilian Real was again a notable exception as it rallied against the greenback to levels last traded in July 2015.  Investors are growing more confident that Brazil’s body politic has reached a point of transformation for the better.  Their money is following the good news.  The Australian Dollar traded in line with the global pattern.  The Aussie has gained a quarter cent to start today just under 76¾¢.

Grains & Oilseeds

  • Global wheat futures had a quiet Tuesday, leaving prices little changed on low trading volumes.  The Kansas September-December spread was little changed on the day so we have no new steer on how the US carrying task is going either.
  • ASX East January wheat futures were marked a dollar or so lower on Tuesday.  Global markets continue to provide little direction, so today could also be a quiet day.
  • Corn futures continued to drift sideways in Tuesday trade.  Conab, Brazil’s crop forecasting agency, once again cut its estimate for the current season crop, citing significantly lower safrinha yields.  Total 2015/16 Brazilian corn production is now expected at 68.5mmt – which is 1.5mmt lower than the USDA’s current forecast.  The market appears to have taken little note however – possibly because it already had a similar number in mind.  US crop weather remains generally favourable across the Midwest, despite some dryness this week.  Welcome rainfall is forecast for the Delta and south-eastern states.
  • Oilseed prices were higher Tuesday – soybeans slightly, canola strongly.  The trade, watching the Brazilian Real rally, will continue to expect strong US export sales.  Indeed the USDA reported that another 120,000mt of US was ‘beans sold to unknown buyers on Tuesday.  Yesterday marks the tenth consecutive trading day of substantial new sale announcements.  Strong exports are helping to balance expectations of a huge US 2016/17 crop.  The USDA’s WASDE update on Friday will show us how they think the two net out.  Canola prices also got an additional boost from higher Malaysian palm oil futures and some concern over a deluge of rain in parts of the Canadian Prairies.

Cotton

US cotton futures plunged on Tuesday.  The market gapped down shortly after opening.  Investors were spooked when forecast rain in West Texas arrived earlier (and was much heavier) than expected.  Forecasters say the welcome rain twill linger over the US Southern Plains for the next week or so. For some crops it has probably arrived too late to restore full production potentials, but the turn in the weather means further US crop downgrades are now less likely.

Sugar

Sugar futures prices weakened a little on Tuesday.  The October did trade close to recent highs on the day but faltered there for a second day.  All other contracts traded new highs.  The New York October-March discount also deepened again to end the day at -44.  Prices and spreads moved in the same direction today but there is still a sense of disquiet about the trading over the past week.  A very hefty rally in prices aside a grinding decline in spreads is incongruous.  A little bit DeVito and Schwarzenegger.  Sugar also fell while the Brazilian Real made new highs.  The day did though feature some supportive news.  Datagro, a respected Brazil-based forecaster, has upped its 2016/17 global sugar deficit again.  And Sao Martinho, a big Brazilian sugar and ethanol producer, said southern Brazil’s sugar output was limited to 36Mmt in the next few years.  The world will largely have to find the extra sugar it requires elsewhere.  The major question is unchanged though, and it is not whether prices should be higher now, but whether they should be this high.

Dairy

NZX WMP futures surged on Tuesday.  The market’s impressive rally over the last two weeks suggests that traders now believe NZ’s transition to a tighter supply state is imminent.  Official production data will be closely watched over the next few months to corroborate that view.

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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