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Agri-commodities update: Whiter shade on sale

Traders delivering a large amount of sugar into the London Whites futures causes the market to again question highish price levels.

Currencies

The US Dollar was mostly little changed against the other agri-exporter currencies on Tuesday.  The greenback’s zigs and zags took it nowhere novel so there was little impact on prices.  Nonetheless, the greenback remains not far off making new highs so the various markets will be wary.  The Australian Dollar was little changed over the past day to once again start at about 75½¢.

Grains & Oilseeds

  • US wheat futures rallied sharply on Tuesday. Chicago and Kansas recovered sharply from near season lows.  The bounce suggests the price levels might have attracted some export interest.  We will get confirmation in export sales data in the weeks ahead.  Export interest makes some sense based on the price levels.  And the indications that milling grade supply from the Black Sea region is slowing would also be consistent with some switching to other origins, like the US.  Weather forecasters continue to expect dry parts of the US hard red winter wheat region to remain that way for yet another week or so.  Forecasters also continue to expect temperatures to decline in the 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.  Focus now switches to how quickly the crops can accumulate a protective blanket of snow.
  • ASX East January wheat futures fell about 2$ on Tuesday to close just above 228$.  That’s the lowest close since early September when prices fell to 225½$.  Seems some harvest pressure is mounting.  Australian wheat prices are not pricey in global terms so we think these levels will find export support sooner or later.
  • Corn futures traded modestly higher Tuesday.  The market’s fundamentals remain pretty much status quo.  Weather forecasters says fieldwork in central Brazil may experience delays over the coming fortnight due to frequent rainfall.  Planting is ahead of schedule in Brazil though so that shouldn’t cause much concern.
  • Oilseed futures prices were just a shade stronger Tuesday.  Soybeans were buoyed by strength in grains markets and some better than expected US October crush data.  Weakness in the Asian veg oil complex though continues to limit further gains.  The US reported another couple of big export sales on Tuesday.  Demand remains exceptionally strong because the US is currently the only major producer with exportable supplies on hand.  A lower Brazilian Real though will make forthcoming Brazilian soybeans look more attractive to buyers like China.  The US Dollar may well become a headwind for this market again in 2017.  Canola futures followed the ‘beans higher, though the stronger Canadian Dollar provided some resistance. 

Cotton

US cotton futures found some support on Tuesday. The March contract traded steadily higher to finish the day up nearly 2%.  As expected, news of the US’ slow harvest progress gave the market a boost.  And the fact that Texas is running particularly far behind its average pace is significant.  The USDA is anticipating that hurricane losses in the US Southeast will be offset by improved crop prospects in West Texas.  Anything that threatens that outlook, real or imagined, will send the market into a spin.  China’s Customs Bureau reported that China imported just 41k tonnes of cotton in October – the lowest monthly volume since 2004.  The International Cotton Advisory Committee has suggested Chinese cotton imports may rise this season.  The timing though will be a matter of policy.  Until then the global market will lean more heavily on growing importers like Bangladesh and Vietnam to absorb supply. 

Sugar

Sugar futures saw hefty falls in the first few contracts on Tuesday.  Prices for seasons 2017 and 2018 fell but only modestly.  Trading volumes, while not huge, were decidedly larger than most days over the past fortnight.  The late bursts of selling suggest the market’s waning momentum is dislodging more investors from their long positions.  The scale of the position remains large enough to be very influential.  Investor sales though were not the catalyst for the fall – that came from London.  The London Whites December contract expired with an unusually large delivery.  Large deliveries are often treated as bearish events.  Traders though can have a variety of reasons for making large deliveries into futures.  And the receivers didn’t seem too eager to avoid the delivery.  Still, in our view it is at least somewhat odd that, in a supposedly tight market, that several large sugar traders with well-established distribution networks could not find a better sale than the exchange.  Looking ahead, the south Brazilian millers will publish their production data for second half of October tonight.  We expect the split to favour sugar over ethanol.  Most others do too but the potential for a surprising amount of sugar production remains.  Weather forecasters expect supportive conditions for late crushing in both south Brazil and Australia.

Cattle

Australian spot cattle indicators had another mixed day.  The EYCI though took a tumble as greater numbers of secondary cattle flowed on to the market.  US live cattle futures had a mixed day too.  The December closed a touch lower, while later contracts struggled their way to small gains.  The US market retains an air of caution.  Beef demand is expected to improve over the holiday months (though ham and turkey will likely overwhelm around the Thanksgiving period) but the sheer scale of expected protein production casts doubt over any sustained price rise.

Dairy

The GDT auction overnight saw the overall dairy price index rise by 4.5%.  The auction also saw hefty rises in some categories, like SMP, that had lagged the rally.  WMP auction prices recorded modest rises of just over 3%.  WMP futures were signalling a rise of more than double that.  WMP futures, unusually, were active on the day of the auction.  The earthquake in NZ’s North Canterbury region on Monday has the some of the market worried.  Some farms have suffered interruptions.  And the image of the three lucky dairy cows huddled together on a pedestal of pasture created by the sinking land around it is probably destined to become an iconic image.  While that is unfortunate for those involved the scale of the impact is probably not enough to require another material cut to NZ milk production.  Processors in the region report that they are largely operating normally.

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.commbank.com.au/corporate/research. This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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