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Agri-commodities update: weight piles on sugar

Most agri-commodity prices were weaker on Friday, sugar in particular.

Currencies

The US Dollar’s weak run against the agri-exporter currencies came to a screeching halt on Friday.  The US published stronger economic data Friday to give the greenback a boost.  An earlier positive surprise, in China’s economic data, saw the Australian Dollar trade at the highest level since early-May (about 76¾¢) during Asian trading hours on Friday.  The greenback’s surge though later weighed on the Aussie to finish Friday (and start today) at a shade under 76¢.

Grains & Oilseeds

  • US wheat futures prices weakened on Friday.  Chicago prices suffered sharp falls and Kansas prices were not far behind.  Kansas September closed at 413¾¢.  Kansas September has found heavy buying support at 410¢ and 400¢ in in recent trading.  A stronger US Dollar and weaker corn prices might take prices down to those levels again soon.  Then we will see if there is further buying in that price interval.  If not we may see Kansas below four dollars for a period as the harvest, on top of hefty inventories, weighs on prices.
  • ASX East wheat futures prices fell on Friday.  January traded at 247$/t – a shade above season lows.  Old crop July was marked down to 252½$/t – a season low.  Australian wheat prices are mixed on a global basis – a shade high against Chicago, but reasonable against Kansas.  The direction today is quite uncertain, especially given the hefty fall in the Australian Dollar after Friday’s ASX trading close.
  • Corn futures were lower again on Friday.  With weather forecasts changing by the day some investors were unwilling to hold positions over the weekend.  Friday's position report showed that investors, once again, have reduced their longs in corn sharply.  Since its peak in mid-June, investor long position has halved.  The US Midwest received some welcome rain over the weekend, as did parts of the Southeast and Delta.  Forecasters say that the much anticipated high pressure ridge is likely to build over the western Corn Belt and Plains early this week and then expand more broadly into the Midwest from Wednesday onwards. Temperatures are expected to periodically rise above 40 degrees.  Soil moisture though is above-average for this time of year and weather models now suggest that the heat and dryness will not linger as longer as originally advertised.  That being said, the forecast could just as easily swing back the other way this week.  The market will remain at the mercy of the weather models.
  • Oilseed prices were lower on Friday – canola sharply, soybeans modestly.  The soybean market drew some support from a large sale of US ‘beans to China, but US weather remained the main price driver.  A now less threatening outlook for US crops has seen investors pare back the weather premium they had built into the market.  While those erratic forecasts are likely to remain centre stage this week, there are some concerns for oilseed crops outside of the US which might see ‘beans fare better than corn.  China's Yangtze River Basin has seen heavy flooding over the last few weeks.  More rain this week has forecasters worried about additional crop losses. And, while soil moisture has greatly improved throughout India’s key oilseed production areas, those regions are expected to experience net drying conditions over the next week or so.

Cotton

Cotton futures extended their gains on Friday, albeit more modestly.  ICE December rose to 75¢ early on, then fell sharply on profit taking.  By day’s end though prices were back on the rise.  Importantly, the later-dated contracts saw the best gains.  There are still concerns about dryness in India and the US, but if China’s reserve sales continue see good uptake from mills the market unlikely to be short of cotton in the near-term.  We expect the curve will continue shift back towards carry, in one way or another.  Friday's position report, unsurprisingly, showed that investors have been heavy buyers.  Their long position in cotton is now approaching highs not seen since 2013. 

Sugar

Sugar futures prices dived on Friday.  The New York October closed at the lowest level since the run into the July contract expiry. The October-March discount traded recent depths of -27.  UNICA, the southern Brazilian millers association, published their crush records for the second half of June.  The data provided something of a strong impression of production in that period.  And certainly it was stronger than pre-release polls were anticipating.  Virtually every component pointed to more sugar so prices weakened.  While the production surprise was weighty enough to push prices down the size of the fall owes much to a heavy long position among investors.  The fall in prices over the past couple of weeks has accumulated to a point where momentum is either nil or pointing down.  Long momentum investors will, either way, be sellers – and they did so in size on Friday.  A 20 minute sale of around 20k contracts accounted for much of Friday’s fall.  And they will still, Friday’s positions report suggests, have plenty more to sell.  The market might easily drop another couple of cents to clear the investor long momentum position. 

Dairy

NZX WMP futures were lower again on Friday.  A GDT event looms tomorrow evening.

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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