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Agri-commodities update: Oh…sugar

Sugar prices tumble again as the market’s responsiveness to high prices becomes clear.

Currencies

 The US Dollar was either a little higher or little changed against the other agri-exporter currencies on Wednesday.  The greenback’s strength remains a headwind for US$ prices.  And the recent rise is pushing it into novel territory.  The buck traded its highest level in almost a year on the Euro.  The Australian Dollar is testing its lows of for the past few months.  The Aussie has fallen ¾¢ to start the day at about 74¾¢. 

Grains & Oilseeds

  • Wheat futures were mixed on Wednesday albeit with weaker tinge.  Chicago and Kansas both had sharpish falls to leave them not far above season lows.  The US Dollar’s strength is the main reason for the leg down over the past week or so.  The US winter wheat contracts, where the US still has shedloads of wheat it needs to shed, have suffered the most.  The US hard red winter wheat region’s weather outlook has changed.  Weather forecasters now expect a few precipitation events in the dry parts of over the next week or so.  The events are unlikely to produce lots of moisture.  Forecasters have also bumped up their temperature for the region too so there is a delay on dormancy that will allow the crop to use any moisture.
  • ASX East January wheat futures lost about 2$ for a second day to close yesterday evening at 226½$.  Prices are closing on the lows of early September when prices fell to 225½$.  Australian wheat prices are looking like good value in the global picture.
  • Corn futures drifted back down on Wednesday.  A higher greenback is now proving to be a headwind for US$ prices.  The trade is expecting US export data (due out tomorrow) to show slightly lower corn sales as a result.  On the weather front, the US harvest continues to wind down amid favourable conditions.  The two week outlook for Brazil also looks largely unthreatening.
  • Soybean futures turned lower on Wednesday.  Early follow through strength from the strong US crush report eventually gave way to more active selling.  The prospect of a big US carryout, large South American supplies, and a stronger US Dollar is weighing on traders’ minds.  Even news of US exports sales to China have struggled to inspire their usual strength of late.  Perhaps the market is becoming wary of the potential for cancellations once South American prices become more competitive.  Canola futures managed to post small gains on Wednesday.  Canola’s premium to soy has rallied back to 20$ as a result.  Weather forecasters expected a few inches of snow in Canada’s Prairies overnight.  Cooler temperatures mean that snow might linger and so further restrict late-season harvesting.  Australia’s harvest should largely advance around showers in the coming week, though some parts of Victoria may become too soggy. 

Cotton

Cotton futures advanced for a third consecutive day.  Prices, now pushing up towards 72¢, are likely test key resistance levels today.  Market chatter suggests that a cash crunch in India is having an effect on cotton markets.  Physical cotton supplies in India have dried up since its Prime Minister demonetised high-denomination banknotes.  Indian farmers, who are normally paid in cash for their cotton, are withholding supplies until greater certainty over payment is restored.  We expect this shortage will prove to be a short-term problem.  India’s 27mmt harvest is progressing under largely favourable conditions.  Nevertheless, cotton prices could continue rising until liquidity in India improves and the trade stops worrying about sourcing cotton.

Sugar

Sugar futures prices continued their downward trend on Wednesday to record sizeable falls across the board.  2016 season prices plunged while subsequent season prices also saw big falls.  The market is clearly having a change of heart but we are not surprised by that.  The big London Whites sugar delivery into the December contract looked even more bearish as more details were revealed.  And south Brazil’s mills produced more sugar in the second half of October than expected.  Both items simply round out an impression that high prices have, as they usually do, cured high prices.  New York March is now closing on 20¢ as a result.  We think investor’s long positions mean there is potential for prices to overshoot on the low side.   Weather forecasters continue to expect supportive conditions for late crushing in both south Brazil and Australia.

Cattle

US live cattle futures rallied on Wednesday after cash prices bounced in the online Fed Cattle Exchange.  That took the market to levels not traded since September.  The market is anticipating bullish news out of Friday’s cattle on feed report too.  Analysts expect to see October cattle placements down 3% year-on-year.  Persistently high slaughter rates imply that marketings may have jumped by around 5%.  Should that evolve it would create more certainty in the US cattle market and allow prices to push further off the lows.  Any improvement in overseas markets will be a positive for Australian prices.  As is the sizable fall in the Aussie Dollar of late.  Yesterday the EYCI clawed back a couple of cents from the previous day’s chunky fall.

Dairy

NZX WMP futures had a mixed Wednesday. Prices in the nearer dates were a shade weaker, while prices for the June-September window made sharper gains.  In our view the latter gains are mostly about calibration to earlier gains in nearer dates so there is not really any new signal in that.  The market is probably going to consolidate here for a while.

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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