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Agri-commodities update: The rain stays mainly off the western plain

Western regions of the US’s hard red winter wheat regions are dry and are likely to remain that way for another week or so.

Currencies

The US Dollar had a mixed Monday against the other agri-currencies.  The greenback gained on the Euro and NZ Dollar to push them down near recent lows.  Brazil’s Real and the dollars of Canada and Australia though were stronger overnight, all buoyed by higher prices for hard commodities.  The Australian Dollar’s early weakness in Asia yesterday means it starts today a shade lower, at just over 76¢.

Grains & Oilseeds

  • Wheat futures prices were higher on Monday.  Chicago with hefty gains, and Kansas with sharp gains, put a little more daylight between closes and season lows.  Chicago’s gains were near double that of Kansas.  Some investors are perhaps re-thinking their short in wheat.  The watch-list for 2017 crops will likely see the Black Sea regions scratched off the list.  Weather forecasters expect rain to move eastward from the Ukraine into southern Russia.  Western regions of US hard red winter wheat country remains on the watchlist.  Weather forecasters suggest that doesn’t look likely to change in the next week or so.  Temperatures remain warm enough for now that crops will be able to use any rain that does arrive so the market is not yet locked into marking down crop forecasts.  The clock though is ticking louder.
  • ASX East January wheat futures were marked 1½$ higher on Monday to close at 239$.  That close is the highest since mid-August.  Overnight action in markets means Australia’s basis is little changed from yesterday. The market’s worries about wheat quality seem, for now, to be overriding the need to price Australian wheat competitively.  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 but they also now expect temperatures to be a little lower which means drying will be slower than otherwise.
  • Corn futures were modestly higher on Monday, with the bulk of the gains made in early trade.  Forecasters are now expecting a wetter turn in the US Midwest this week.  The rain is expected to remain light though, so harvest progress will probably just be a slower than is ideal.  The need for rainfall in dry pockets of Brazil, particularly around Mato Grosso, is again rising.  Forecasters say emergence will be slow without it and have suggested some crops may need to be replanted if conditions stay dry.
  • Soybean futures finished little changed on Monday, while canola markets were closed on a Canadian holiday.  China has returned from their holiday period and so demand expectations for oilseeds will be relatively high this week.  The soybean market again attempted to break higher on that outlook but prospects for extra supply are still a handbrake.  The market expects the USDA to bump up its US soybean yield forecast on Wednesday night.  Forecasters say the pace of US harvest will be a little slower than expected this week with a more rain now showing up in the models.  In Brazil, soybean planting is now about 10% complete – almost double the average pace.  However parts of central Brazil are looking dry again after a weekend of hot temperatures.  Those crops will need to see the soil moisture profile improve for favourable establishment and emergence.  Argentina should see an increase in rainfall over the next week or two, which might prove enough remove some of the drier areas from our watchlist.

Cotton

US cotton futures were a shade higher on Monday.  The market though spent much of the day on a weakening trend.  Traders will be positioning themselves ahead of Wednesday night’s WASDE and we expect some long liquidation has been occurring.  Forecasters say Hurricane Matthew is likely to have caused a general quality decline in the Carolinas, but the extent of the damage probably won’t be known for a few days.

Sugar

Sugar futures prices fell sharply on Monday but not to anywhere novel.  2017 and 2018 prices were down too, but much more modestly.  The sugar market has spent the past fortnight going nowhere in a volatile way.  The lack of further gains, should it continue, is material.  A hefty chunk of the huge investor long position is very likely to be based on momentum (i.e. the market was rallying).  A period of sideways trading eventually slows more and more measures of momentum as time passes and that prompts momentum investors to exit.

Cattle

Australian spot cattle indicators were mostly weaker Monday.  The EYCI took a material step back from recent highs, with numbers offered in Monday’s physical markets much higher after a two week break in the selling program.  Eastern states slaughter though continues to fall away – last week’s slaughter was back almost 30% on the previous year.  The US cattle market remains an entirely different story.  Just when traders were beginning to think the bottom of the market was in sight, US cash prices dropped again.  Live cattle futures fell even more abruptly, erasing all of last week’s gains to close the day limit down.  Cattle supply in the US is just not tightening up as many had expected heading into autumn.  Some are wondering whether the US herd expansion has been somewhat understated.  On the trade front, Indonesia’s government has reportedly relaxed its new cattle import rules for small farmer co-ops.  The Indonesian Trade Minister announced that small farmer cooperatives would only be required to import 1 breeder for every 10 feeder cattle (larger feedlots must import 1 breeder for every 5 feeder cattle).  Australian-Indonesian trade has been slow the last several weeks as much of the Indonesian feedlot industry continues to rail against the new regulations.  Importers argue that the breeder requirements are prohibitively uneconomical.

Dairy

NZX WMP futures prices were mostly steady in quiet trading on Monday.  Some of the mid-2017 contracts saw some hefty falls but given the fluky liquidity at that horizon we will not read much into that.  The NZ Dollar is trading near 8-week lows this morning.  The lower Kiwi should help underwrite better farmgate milk prices in NZ this season. 

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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