Wheat prices succumbed to a strong greenback, low feed prices and weather model projections.
The US Dollar was again either little changed or a little higher against the other agri-exporter currencies on Monday. The greenback continues to gain on expectations that new US economic policies will spur faster economic growth and higher US interest rates. The Australian Dollar was in the little changed group yesterday, despite weaving up and down. The Aussie starts today once again a little under 75½¢.
Grains & Oilseeds
- US wheat futures fell, in varying degrees, sharply on Monday. Chicago in particular recorded hefty falls. US wheat prices are adjusting to a stronger US Dollar. The USDA reported a dismal export inspections number on Monday just to remind the market that price competitiveness remains important. We suspect there is also an element of catch-up, for Chicago at least, to the earlier declines in corn prices. The Chicago and Kansas contracts did not get to new lows but they aren’t all that far above them. The weather news was also a little unhelpful. Weather models had projected some rain events in US hard red winter wheat regions. Weather forecasters are highly sceptical these projections will persist, much less be realised. Later model projections are already projecting less rainfall. Weather forecasters continue to expect dry parts of that regions to remain that way for yet another week. Forecasters also continue to expect temperatures to decline about a week ahead so any moisture may be moot because the crop will not be able use it anyway. Crops will be poorly established and, as temperatures descend, vulnerable to cold.
- ASX East January wheat futures fell 1½$ on Monday to close at 230½$. That’s the lowest close since early September. The falls in global prices overnight are strong negative vibe to start today. Even so, Australian wheat prices are not pricey in global terms so there is not a strong impetus to restore competitiveness.
- Corn futures continued to drift lower on Monday. The weekly positions report showed that investors bought back a large portion of their short position ahead of last week’s WASDE report (and some even established new long positions). The USDA’s surprise US yield upgrade though has likely prompted a reversal of that trend in the week since. The US harvest is now 93% completed, while Brazil’s centre-south summer corn planting is 86% complete. Weather conditions are set to remain favourable in both places this week, so we expect corn to continue bumping along near recent lows.
- Soybean prices were just a touch weaker in quieter Monday trade. Spillover weakness from Chinese commodity futures remained a feature. And a sudden reversal in Malaysian palm oil futures added to the bearish tone. Further losses were capped though by strong US export inspection data and a fresh sale of nearly ½mmt of US ‘beans. The weekly positions report indicated that investors have continued to build up their long position in ‘beans. The position though is only about two thirds the size of its May peak, so is probably not yet at levels that would activate fears of the market looking overbought. In South America, the plunge in the Brazilian Real is providing some good selling opportunities for Brazilian farmers. Advance sales of the 2016 season crop (now about two thirds planted) have reportedly risen to ~45% - a big jump on last week. Canola futures also drifted lower Monday, in line with the soybean complex. The Ukraine’s winter rapeseed crop is reportedly facing a few issues. About 10% of the crop not yet emerged amid tough establishment conditions. Forecasters say a few weather systems will move through Canada’s Prairies this week. The resulting rainfall is not likely to be especially heavy but the region needs a drier pattern to prevail to allow farmers to get as much late-season harvesting completed as possible.
US cotton futures finished a shade higher on Monday. The US cotton harvest is now 61% complete – eight points behind the five year average. The slower than normal pace may add a touch of support to the market today. Yesterday China’s National Cotton Information Centre cut its forecast for 2016 season production to 4.88mmt (previously 4.92mmt), citing weather damage. That will see China’s output back 6.5% year-on-year. The International Cotton Advisory Committee also released an updated set of forecasts yesterday. ICAC says it expects global production to fall a little further and consumption to lift as Bangladesh and Vietnam increase their cotton imports. The slow rebalancing continues.
Sugar futures rallied on Wednesday. Early trade saw sugar, like many other markets, slump initially but follow that with a recovery to end the day at about 22¢. The sharpest gains came in the later contracts covering seasons 2017 and 2018, but only after some equally sharp falls – so the levels have not changed all that much. The feature that caught our eye though is that most of the contracts only found hefty buying down near where ethanol and sugar come into parity for Brazilian mills. Perhaps coincidental, perhaps not. 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.
Australian spot cattle indicators had a mixed Monday. Price trends for young cattle varied depending on available supplies at each market. Prices for heavy steers and cows were generally better supported. Restocker demand, while now more selective with the increased numbers on offer, is clearly still present in the market. That has allowed the EYCI to take a bit of a breather from October’s much chunkier falls. More downward correction will be in store but for the moment the market looks to be forming a base around the 650c/kg cwt level. Recent falls in the Aussie Dollar will have given Australia’s competitive position a slight boost. In the US, live cattle futures markets were mostly a touch stronger Monday. The weekly position report though showed that investors had trimmed their long positons in the week to last Tuesday. The rebound in prices last week has probably left them feeling a touch more optimistic.
NZX WMP futures prices continued to trade quietly on Monday. Contracts that traded did gain but there was not enough trade to come away with any sense that the day had a direction. GDT hold their second November auction tonight. Futures are suggesting another hefty 5%-plus rise in prices. Still, even that rise pales in comparison with the previous GDT auction when WMP prices rose by all but 20%. We expect WMP prices to rise by a hefty amount. The news that milk supply will shrink this year is still spurring consumers into action. The drop in the NZ and Australian Dollars might spurt some extra opportunistic selling. Given that is where the contraction in supply is most acute though the extra is unlikely to materially alter the auction’s supply balance.
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