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Agri-commodities update: Has the milk tap turned off?

Dairy prices posted a stunning rise at last night’s Global Dairy Trade auction on expectations of much tighter global supply in the 2016/17 season.

Currencies

The US Dollar weakened against most of the agri-exporter's currencies on Tuesday.  The Brazilian Real was an exception.  The others, the Australian Dollar included, traded higher on the day.  The Aussie starts today at about 77¢, but did trade almost a half-cent higher overnight.

Grains & Oilseeds

  • Global wheat futures had a quiet Tuesday with prices little changed overall.  The broad stability we have seen through August is encouraging us to think we have seen the low for now in US futures.
  • ASX East wheat futures were lower on Tuesday.  ASX January lost 3½$, which took prices down to a fresh season low of 237½$.  The modest overnight moves seen in global wheat and currency markets provide little overall direction for Australian prices this morning.
  • Corn futures prices largely traded in a sideways pattern on Tuesday.  CBOT December attempted to break lower early in the session but quickly recovered.  A quiet day all up.
  • Soybean prices closed a touch weaker on Tuesday.  Largely favourable conditions are expected to persist in US crop regions for the next week or so.  Forecasters say some early season soybean harvesting in the Delta will be slowed by rain, but the bulk of crops should benefit from the increase in soil moisture.  Canola prices also moved lower on Tuesday, pressured by strength in the Canadian Dollar.  Forecasters say Australian crops remain in good condition, supported by mild temperatures and good rainfall.  Canadian canola is looking at high production potentials this season too.

Cotton

US cotton futures finished Tuesday not far from where they started.  The front December did take a sharp turn lower at one point, but found buying support around the 67¢ level to close just shy of 69¢.  China sold 51% of the 30,000 tonnes of reserve cotton offered on Tuesday – another average result compared to earlier clearance rates.  Forecasters say that the US southern Plains will receive some much need rain later this week to improve soil moisture conditions.  Significant rain in the Delta though will likely slow crop development for a time.

Sugar

Sugar futures prices made sharp gains on Tuesday.  Prices have gained a cent in two days – not something to be ignored.  Nonetheless, the gains have a flimsy feel to them.  The market has traded little volume to make these gains.  And New York's October-March spread weakened on the day.  Of course we perhaps have a bias for our view but we just cannot dispel our impression that sugar prices are on the high side.  Biosev, a large Brazilian sugar and ethanol producer, said yesterday that they were investigating whether they could add capacity and so produce more sugar.  If current prices are encouraging this kind of thinking then our impression is only confirmed.

Dairy

NZX WMP futures were quiet in the lead up to last night’s GDT auction.  Auction results were once again very strong, with the overall GDT index lifting almost 13%.  WMP prices though posted the most impressive gains on the night.  The WMP index surged 19%, for an average winning price of US$2,695/t.  NZ is the key supplier of WMP exports, so the results confirm that buyers are anticipating a period of rapidly tightening NZ supply over the next few months.  All eyes will be on NZ spring milk production data to see just how large that correction is.

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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