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Agri Commodities Update: Dollarium Tremens

Agri-commodity markets were shaky after they awakened to the possibility of the US Dollar’s directionless trading giving way to gathering strength again. Also note that today we begin daily coverage of cattle markets.


The US Dollar’s stronger trend re-asserted itself on Tuesday.  Financial markets broadly seem to be changing their expectations about when the US Federal Reserve will raise interest rates to sooner and perhaps by more.  The greenback touched near-term highs against many of the agri-exporter currencies on the day.  The greenback’s gains were large enough that they put material pressure on US Dollar commodity prices.  The Australian Dollar was part of that broader move.  The Aussie starts today about a cent lower than yesterday at little under 74¾¢.

Grains & Oilseeds

  • US wheat futures prices fell sharply on Tuesday.  The US Dollar’s rally was a key reason for the fall.  The last thing US grain markets, awash with inventory, need now is less exports.  US futures prices remain above season lows for now.  If the greenback’s rally gains momentum they will quickly be threatened.  Other grain origins will not need to make a competitive adjustment for currency reasons.  Paris futures were a case in point last night as they rallied away from near-season lows.
  • ASX East January wheat futures gained 3½$ to close at 237$.  The price is the highest in about a month.  The big falls in global prices are unlikely to worry Australian prices too much today.  The Australian Dollar’s decline, plus some pre-existing competitiveness, should largely cushion the market today.
  • Corn futures got clobbered on Tuesday.  The day’s action had a determined feel to it too – no zigging and zagging, only steady selling.  The weakness in wheat markets was clearly a factor.  Monday night’s WASDE confirmed that corn prices will linked even more closely than usual to Kansas wheat, as the two vie to offload their large inventories into feed rations.  A stronger US Dollar and weaker energy markets also added pressure on the day.
  • Oilseed prices tumbled Tuesday as the fallout from heavier US soybean supply forecasts continued.  We expect some of last night’s action had a US Dollar component to it as well.  The greenback’s gains against the Brazilian Real have been sizeable in the past week or so.  Market chatter is also focused on whether Argentina’s government will follow through its election promise to reduce taxes on soybean exports to 5%.  Last year President Macri cut the tax from 35% to 30%.  Argentina’s Agriculture Minister though is reported to have said “What people need to understand is that beyond electoral promises, the reality limits us”.  If the current 30% tax is maintained, Argentine farmers’ planting decisions might be affected in 2016/17.


US cotton futures recovered only a little lost ground on Tuesday.  Monday’s bearish WASDE report continued to weigh.  Meteorologists see more wet weather on the horizon for West Texas – regular rounds of rain are expected to stretch for another ten days.  We might see some quality concerns emerge from that in the next few days.  Southern hemisphere planting conditions will soon shift into focus too.  Forecasters say Australian cotton regions (particularly in NSW) now need to heat up and dry down for optimal planting conditions.  On the other side of the coin, Brazil’s moisture profile is trending too dry and rain will be needed soon.


Sugar futures prices again made sharp gains, as did spreads.  The October-March spread in particular rallied sharply to sub-carry levels.  That spread could not hold the day’s highs though and retreated back to almost carry by day's end.  Market chatter is now about a difficult end to the south Brazil season.  That is creating some physical urgency for the trade to buy.  That urgency is well-timed to smooth the path of investors rolling their giant fund long into the March contract.


The US cattle-beef complex continued to weaken on Tuesday, pressured by rapidly rising stocks of competitive proteins.  US fed cattle prices remain not far from multi-year lows as a result.  By contrast, Australian cattle prices broadly made modest gains on Tuesday, buoyed by forecasts for widespread rain across the eastern states.  The tug of war between high Australian cattle prices and weak international beef markets will remain the dominant feature of trading while the national herd undergoes a lengthy rebuilding process.  Imported Australian lean beef is currently trading at around a 5A¢/kg discount to local product on the US market.  In mid-2015 that discount touched a low of 2A$/kg – so the loss in competitiveness is tangible.  Last night’s big fall in the Aussie Dollar will have taken a little pressure off basis – but not enough to make a material difference to the trading environment.  Expectations are for US prices to fall even further as more slaughter ready cattle hit the market, so we don’t see the pressure on Australian exports abating any time soon.


Some NZX WMP futures made gains on Tuesday in relatively quiet trade.  Today’s start has been somewhat weaker.  The NZ Dollar fell sharply over the past day which generally does not help the market’s mood.  The market continues to lack broad impetus as it awaits proof of contracting supply.

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This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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