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Agri Commodities Update: Wozdy Mundy

The USDA’s WASDE report prompted sharp declines in soybean and cotton prices but had only a minor impact on the grains.

Currencies

The US Dollar ended a shade weaker on Monday.  The greenback touched near-term highs against many of the agri-exporter currencies.  The Australian Dollar was one example.  The Aussie touched a low of 75¢ overnight but starts today little under 75¾¢. 

Grains & Oilseeds

  • US wheat futures prices rallied sharply on Monday.  The rally came early with the release of strongish US export sales.  The USDA’s crop report (the WASDE) was a setback for the wheat market. – but only briefly.  The WASDE didn’t suggest the wheat market’s supply issues are getting any worse.  So the WASDE provided no real “news” (novel information).  Better US export sales were news.  As was some analysts shaving their estimates of Russia’s 2016 crop.  Both are good news, as was a late retreat in the US Dollar.  So US prices continued to recover the losses made after Egypt’s zero ergot decision.  On that metric, Minneapolis prices have almost recovered all those losses, Kansas about two-thirds, Chicago nearly half.  No such luck for Paris futures – they continue to weaken and close on new lows for the season.
  • ASX East January wheat futures were marked a 1½$ higher on Monday to close at 233½$.  Australian pricing is looking attractive for buyers compared to other origins.  When added to the trade’s worry about the supply of milling grade grain in eastern Australia, prices may step a little higher again.
  • Corn futures finished the day just a shade lower overall.  US corn yields were trimmed in last night’s WASDE – but by less than analysts had expected.  While a 174.4bpa yield (previously 175.1bpa) will see production modestly lower, US supplies are still set to remain at record levels.  It was also suggested that less US corn will be channelled into feed, as ample supplies of (cheaper) feed quality wheat will pinch some market share in 2016/17.  Consequently the report didn’t generate much excitement among investors.  The market will now turn its attention to southern hemisphere summer crops.  Brazil is expected to plant more first crop corn at the expense of soybeans.  How much of that ends up in the bin though is still an unknown.  Last season Brazil also planted a large amount of corn – only to have production crippled by dry conditions.  Brazilian farmers though might take some comfort from the fact that meteorologists’ are viewing the chance of a La Nina event as increasingly unlikely.
  • Soybean futures whipsawed on Monday to end the day sharply lower.  The big shock came when the USDA revised US soybean yields up to 50.6bpa - a number that exceeded even the highest of analysts’ expectations.  Although US crush and exports were also raised, the big jump in yields will likely see US ending stocks swell 11% to almost 10mmt.  Investors had been unsure where the “record supply vs. record demand” equation would net out at – now they have their answer.  The big increase in US soybeans will more than offset a reduction in rapeseed production too, so the canola prices were also dragged lower.

Cotton

US cotton futures got smashed on Monday.  New York December plunged 3½%.  The exit light began to flash when the USDA failed to upgrade its forecast for US exports.  After several weeks of improving US export sales, the market had pinned its hopes on a better trade outlook.  While smaller Asian importers have picked up the slack of late, the USDA is apparently not anticipating that to last the season.  China’s absence from the world market will still be keenly felt in 2016/17.  Moreover, any worries the market had over US supplies look to have been supressed for now.  US production forecasts were revised a shade higher last night.  And US cotton conditions came in only point below than the week prior, with 47% of the crop remaining in good to excellent condition.  Fears over damage from Tropical Storm Hermine appear to be in the rear-view mirror.

Sugar

Sugar futures and spreads made sharpish gains on Monday. The New York October-March in particular made sharp gains.  One interpretation of that is to suggest the market might have found a sizeable receiver of October sugar.  We are a bit sceptical that would happen when there is still so much sugar left for delivery on the October contract.  Nonetheless, the market has not yet tipping over as we thought it might.  The presence of potential receiver in October adds to doubts that it will.

Dairy

NZX WMP dairy futures were mostly unchanged Monday in quiet trading.  Murray-Goulburn this morning announced that it has bumped up its 2017 season milk solids price to 4.88$/kgms.   

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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