The US Dollar’s rapid reversal from grinding lower to jumping higher has left US$ prices for agri-commodities grasping to catch-up.
The US Dollar continued its broad rally against the other agri-exporter currencies. The rally so far is an issue for US$ pricing because the greenback is pushing up to levels on some currencies that have not been traded for months. The Brazilian Real was a spectacular example yesterday as it fell more than 5½% to levels last traded in June. The Real had been a market darling as investors honed in on what they thought were high interest rates for modest risk. Now the market is looking for US interest rates to rise at least more quickly so these so-called “carry trades” have dropped into an air pocket. The Real’s fall is large so it will impact sugar, soybean and beef markets. The Australian Dollar fell too, but by a much more modestly half-cent. The market was anything but quite though as it traded over a cent-and-a-half range over the past day. The Aussie begins today at 76¢.
Grains & Oilseeds
- Wheat futures prices were a little weaker on Thursday. The gains in the US Dollar are not helping the market but the issue is less pressing because, one, we are now well into the season and, two, the quality issue is coming to the fore. Weather forecasters continue to expect dry parts of US HRW wheat regions to remain that way with no meaningful rainfall on the horizon. Importantly, temperatures are now beginning their seasonal slide too – we are now headed to a time when the plants might not be able use any moisture anyway. That will cement the crop with poor establishment going into the cold and leave it vulnerable until it is blanketed in snow.
- ASX East January wheat futures had fallen by 7$ to 233$ by the Thursday evening close. Those levels will have been set when the Australian Dollar was near its highs (around 77¼¢). Australian wheat prices are now back in comfortable territory vis-s-vis global prices.
- Corn futures prices closed higher Thursday, though recovered only about a quarter of the previous day’s chunky losses. Weekly US export sales data, while lower than the previous week, still pointed to strong demand conditions for corn. And the USDA announced a fresh sale destined for Saudi Arabia too. Forecasters say conditions in centre-west Brazil will favour a wetter bias over the next ten days or so. So long as it does not become too heavy then the precipitation will be welcome. In Argentina, corn planting is about 40% complete, but further planting will be slow in the southwest with more rain forecast for already waterlogged areas.
- Oilseed futures lifted modestly on Thursday. Rallying palm oil prices remain a supportive feature for veg oil markets. The USDA announced a flash sale of ‘beans to China – much needed news on the day as last week’s US soybean sales had halved. Brazil’s crop forecaster, Conab, lowered its production forecast by ½mmt yesterday, to 103½mmt. Even so, if realised, that would still be a record crop for Brazil so the forecast is not especially supportive for US$ prices. Nor is a slumping Brazilian Real. All signs are pointing to heavy competitive pressure from Brazil in early 2017. The Buenos Aires Grain Exchange said Thursday that soy planting in Argentina was only 11% complete. More rain is forecast for the southwest next week and so won’t allow for much additional progress to be made in that area. Consequently the Exchange has warned that we may see Argentine planting cut as these flood conditions stubbornly persist. Canola futures followed the ‘beans higher on the day. Slow harvest progress persists in Canada, despite a week of reasonably dry weather. Cool overnight temperatures have kept soils damp and limited the window of opportunity for fieldwork.
US cotton futures posted a sharp recovery on Thursday. Trading volumes have been particularly large this week amid all the Trump and WASDE related turbulence. Traders and investors have also started the roll process out of December and into the March contract. US export sales were up on both the previous week and the previous year, adding a touch of fundamental support on the day. Aside from a few scattered showers in Texas over the coming week, forecasters say harvest conditions should remain favourable for the US crop.
Sugar futures prices ended Thursday with hefty falls. Prices were down 2-3% across the board – March 2017 to October 2019. The manner of the day’s final trades suggest the close might have only interrupted the fall too. The Brazilian Real’s slump will have been a catalyst for the fall. Petrobras’s move to lower gasoline prices also underwrites a more sustained bias to sugar among Brazilian mills going forward. The impact in the 2016 season will be small but the shift will mean forecasters anticipate more sugar in subsequent seasons. Weather forecasters have bumped up their rainfall outlook through the south Brazil region. The forecasts are only for normal rainfall in the region so the change is not threatening for crushing but the market will nevertheless monitor the outcomes. Australia’s cane regions have been dry for much of this week but look likely to get some rain over the weekend. Weather models are not projecting that the wetter weather will linger so it is probably not a problem for late crushing.
Australian spot cattle prices were just a shade either side of firm. MLA published its quarterly lotfeeding numbers on Thursday. As expected, the tighter supply situation saw the number of cattle on feed through the September quarter ease further. For the year-to-date (Jan-Sep) though, grainfed turnoff has declined by a modest looking 8%. Some offset from plunging feed grain prices has helped lotfeeders continue securing reasonable feeder supplies through 2016, despite record high prices. US live cattle futures advanced on Thursday, appeased by solid prices in the cash market, while the wholesale beef market traded a little lower. The weaker beef prices appear to now be doing a better job of stoking demand – US export sales, at 19.5k tonnes, more than doubled on the previous week and were up towards the top end of recent ranges. The Trump-inspired US Dollar rally though will be a headwind on US export competitiveness. And huge production volumes in 2016 and 2017 mean that those exports are all the more important. US beef prices will need to remain relatively low to keep strong export sales numbers rolling in. On the flipside, Brazilian beef exports will have received a big competitive boost with the Real’s plunge overnight.
NZX WMP futures prices were largely unchanged on Thursday. The NZ Dollar has fallen further against the greenback. Again, whether that slows or hurries dairy sales is an open question. The NZ Dollar revenues from sales yesterday looked much better than they did on Tuesday. But, they look even better today. The same can be said from Australia too. We slightly favour sales slowing here and now because the market will want to see just how big far this rally in the greenback goes.
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