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Agri Commodities Update: soybeans shake it off

Despite forecasts for record US crops, soybeans bounce on strong export demand prospects, while sugar rallies on expectations of tightening supply.

Currencies

Currency markets started the week in a quiet manner.  The US Dollar did not have any overall direction against the agri-exporter's currencies on Monday.  The Australian Dollar is a little stronger to start today at about 76.75¢.

Grains & Oilseeds

  • Wheat futures began the week weakly.  The late bounce on Friday continued in early Monday trade.  Saudi Arabia held a big hard wheat tender (for 640kt) that continued to help the market.  The US is one potential origin for the wheat.  Kansas time spreads continued to stagnate, cooling expectations that the Battle of the Bulge is over.
  • ASX East wheat futures traded 1$ higher on Monday to close at 241$ - only a whisker above yesterday’s season low.  Overnight moves in US wheat markets (lower) and the Aussie Dollar (higher) were not especially helpful ahead of trading today however, despite the small lift in basis, Australian wheat still looks competitive in a global context.
  • Corn prices made modest gains on Monday, likely pulled higher by the strength in soybeans.  US corn rated in good to excellent condition was left unchanged on the previous week, at 74%.  Even so, market chatter suggests there is plenty of scepticism over whether the record US corn yields (175.1bpa) forecast by the USDA will come to fruition.  Some are questioning whether those forecasts have taken the impact reported ear tip-back well enough into account.
  • Oilseed futures lifted on Monday – soybeans strongly, canola more modestly.  The soybean market shrugged off forecasts for record US soybean production in 2016 and appears to now be focused on the prospect of record demand.  Strong gains in the palm oil market on Monday also provided helpful context.  Largely crop friendly weather in the US has kept soybean conditions steady for another week, with the USDA reporting that 72% of the crop remains in good to excellent condition.

Cotton

US cotton futures finished sharply lower on Monday.  The proportion of US cotton rated in good to excellent condition was left unchanged, suggesting that US weather worries will continue to wane.  The market’s momentum is now pointing down – worrisome given that the funds are holding record long positions.  Momentum investors will be losing the rationale to keep those positions.

Sugar

Sugar futures rallied Monday.  The October-March spread too gained.  Not that it took much to move the market – the move came on very light volumes.  Southern Brazil's sugar production in the second half of July was close to what the market was expecting.  The region is allocating a lot more cane to sugar at the expense of ethanol.  Given the prices of the two commodities that is none too surprising.  UNICA provided the bullish news on the day, saying that sugar production is unlikely to reach the high side of their forecast range.  While the numbers might have been a modest surprise the comments were quite arresting, albeit possibly poorly translated.  Bloomberg reports this as: "We are not going to produce this madness of sugar as some think."  Consider ourselves told (albeit by the biggest supplier).

Dairy

NZX WMP futures closed Monday with solid gains.  The futures market is pointing to a strong lift in physical prices at tonight’s GDT auction.  Fonterra has also cut its 12-month ahead WMP auction volume forecast by 1.8%, so that should provide some additional support to prices.  We expect the WMP index to lift somewhere in the 12-15% range.

Publications Update

We’d like to take this opportunity to introduce our new publication, AgQ.  AgQ is a quarterly publication designed to give a high level overview of many of the major agri-commodity markets.  You can have look at the publication by following this link.  Get in touch with you CBA contact if you would like to be added to the distribution list for AgQ.

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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