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Agri Commodities Update: Inside story

Agri-commodities trading was largely quiet on Friday to leave most prices inside recent ranges.

Currencies

The US Dollar gave up some gains on Friday.  The greenback though is still not that far of highs against several of the other agri-exporters.  The Australian dollar is not one of them – it sits in middle of recent trading ranges.  The Aussie starts today about a half cent or so higher, nearing 76¼¢.

Grains & Oilseeds

  • Wheat futures prices were a shade lower on Friday.  Chicago and Kansas prices remain just a little above recent lows.  The weekend held mixed news for watch-listed 2017 crops in the US and Black Sea regions.  The driest western areas of the Ukraine got some useful rain and might still get more early this week.  The dry Russian regions will miss out on both.  Nonetheless, that has halved the size of the region on watch in the Black Sea.  The dry western parts of the US hard red winter wheat region received only modest rainfall on small patches over the weekend.  Forecasters expect the dry weather to continue.  Soil moisture more likely to decline than anything else of the next week.  The clock is ticking louder for the US HRW crop.  The region has relatively high temperatures that will mean the plants can use any moisture that did arrive near-term.  An early drop in temperatures would be a problem.
  • ASX East January wheat futures were marked 1½$ higher on Friday to close at 237½$.  Friday night action has seen Australia’s basis become slightly positive. The market’s worries about wheat quality still mean that basis level might not attract the usual selling when trading starts today.  The weather is though taking a better turn in the near-term.  Weather forecasters expect the drier weather to persist in soggy eastern crop areas of Australia.  Forecasters also expect temperatures to rise too which should speed drying.
  • Corn futures finished Friday a shade weaker.  The drier weather forecast for this week should aid US harvesting.  The USDA releases its October supply and demand updates on Wednesday night.  Yield reports continue to be mixed and analyst expect that will warrant a small reduction in US output.  Friday’s position report indicated the large investor short position has decreased only slightly.  The sharp rally early seen last week will have erased some of the market’s downward price momentum.  Waning momentum can be a catalyst for investors to suddenly buy back those short positions.
  • Oilseeds had a mixed Friday – soybeans ended lower, while canola futures closed a touch stronger.  The soybean market is under pressure from good harvest weather and expectations that the USDA will bump up the US soybean yield once again.  The investor long position in soybeans increased a little in the week to last Tuesday.  The position is still net long but is now less than half of its May highs.  That means that the market is once again in a position to buy should some positive fundamental news emerge.  The potential for dryness in South America remains on our watch-list.  Both Brazil and Argentina got some rain last week that has boosted topsoil conditions, but much of that will go toward eliminating existing moisture deficits.  Key crop areas will still require additional rainfall in October to ensure a favourable planting and establishment environment.  Canola futures managed to close higher despite the weakness in the soy complex.  Stronger Canadian crush data and a weaker Loonie provided some support, as did weather worries. The tail end of the Canadian canola harvest is still facing delays after rain and snow fell in the Prairies late last week.

Cotton

US cotton futures were lower on Friday as fears over Hurricane Matthew eased again.  Heavy rain has fallen across the US southeast over the weekend resulting in widespread flooding in the Carolinas.  How much the rain has damaged unharvested cotton though is unknown as yet.  The investor long position, as of last Tuesday, was reported to be smaller (and is probably smaller still this morning).  Any further weakness today is probably enough to trigger some more investor selling – New York December is currently sitting just a whisker above key support levels.  The market regularly found buyers below 67¢ last month.  Today’s action will depend on one, just how far inland hurricane damage has stretched, and two, how traders are looking to position themselves ahead of Wednesday’s USDA report.  Our view is that there has been little evidence to warrant any material upgrade to US cotton demand.  Supply though might get a bit of an upward boost – hurricanes aside, US harvest weather has been mostly good overall.

Sugar

Sugar futures prices gained sharply on Friday.  Trading volumes remain thin so the scale of the moves are being amplified.  Investors still had huge long positions as of last Tuesday.  Trading since then suggests that remains the case.  How that elephant leaves the room remains an important issue for the market but the resolution probably isn’t imminent.  2017 season prices made similar gains to current season prices and are around the 600A$/t mark.  2018 prices have again been stickier with only grudging gains.

Cattle

US cattle cash markets were steady to lower on Friday, while live cattle futures consolidated.  Offerings are still on the heavy side – US slaughter was above 600k head again last week and year-to-date slaughter is running about 5% above 2015 levels.  Market chatter suggests many packers already have the bulk of this week’s supplies secured through forward contracts, so demand in the cash markets may remain weak.  On the beef side, US domestic wholesale prices continued to fall on lukewarm demand from retailers.  By contrast, prices for Australian imported beef held steady.  US beef imports were down 16% in August – all of which was attributed to fewer shipments from Australia.  It is important to keep in mind that the drop is not entirely a demand driven story – Australia also has materially less beef to supply in 2016.  However Friday’s price action does suggest that there will be some obvious price pressure for imported beef this week. 

Dairy

NZX WMP futures trading was quiet as the veritable mouse on Friday.  WMP futures are now only a little above the prices traded at the GDT auction so there is less impetus for the market to fall.

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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