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Agri-commodities update: Aussie wheat retreat continues

Australian wheat prices made fresh season lows on the back of strong 2016 production prospects, while WMP futures rallied to levels not seen since last October.

Currencies

The US Dollar waxed and waned against the agri-exporter currencies over the past day.  The greenback's late retreat came after traders and investors concluded that US interest rates were likely to rise even more slowly than previously thought.  The Australian Dollar has, net, lost ground over the past day.  The Aussie weakened because traders and investors concluded lower Australian interest rates are more likely.  The Aussie starts today at about 76.5¢, but traded the best part of half-cent lower overnight.

Grains & Oilseeds

  • US wheat futures finished higher on Wednesday – Chicago modestly, Kansas strongly.  The stronger volumes traded Wednesday suggest investors may be coming around to the idea that prices are now low enough, and so bought back some of their hefty short positions.  The September-December Kansas spread though was little changed on the day though to suggest the US carry task remains a burden.
  • ASX East wheat futures prices continued to plumb new lows on Wednesday.  ASX January lost another 3½$ to close at 234$.  The market is expecting a bumper Australian wheat crop in 2016 to add to already comfortable global wheat supplies.  However overnight gains in US wheat markets, coupled with weakness in the Australian Dollar, has put Australian basis (notionally, v. Kansas) sharply lower ahead of trading this morning.  That may provide some support to prices today.
  • Corn futures made modest gains on Wednesday on the back of some light short covering, but all up it was another relatively quiet day.  US energy data published Wednesday showed that US weekly ethanol output rose to match the all-time high set back in mid-July but, encouragingly, stocks of the corn-based biofuel have continued to fall.
  • Soybean futures prices were higher on Wednesday as evidence of strong export demand continued to roll in. Yesterday the USDA reported another large (381,000 tonne) sale of US ‘beans to China.  Forecasters say weather conditions across the US Midwest are likely to remain little changed for the balance of August.  The Delta region continues to see widespread rainfall, which may cause some delays with early soybean harvesting, but the bulk of crops should benefit from the increase in soil moisture.

Cotton

US cotton futures closed just a shade higher on Wednesday.  Rain is expect to return to Texas late this week and early next.  Most crops will benefit from the boost to soil moisture, but the rain is probably less welcome for early maturing cotton in the south of Texas. Meteorologists say India’s Gujarat region will receive some rain this weekend, a drier bias is likely to return in late August.

Sugar

Sugar futures prices fell sharply on Wednesday.  The New York October-March spread also weakened a shade further to continue its grind on to full carry.  The market’s weak look yesterday seems to have continued today.  Trading volumes remain modest though for the size of the price moves.  Consequently until we find the next big seam of trading the market lacks direction.  We still think the next big move will be lower but we have been disabused of the idea that the move is imminent.

Dairy

NZX WMP futures surged to ten month highs on the back of Tuesday evening’s very strong GDT auction results.  Most 2016 and 2017 contacts posted 3-6% gains.  Those sharp moves took place despite trading activity being limited to just a handful of trades on the front September contract.  Fonterra reported this morning that its total NZ July milk collections were back 1% on last year.  NZ milk production is still seasonally very low in July though (typically representing <1% of total output for the season), so collections in the peak spring months will be far more telling of how much NZ supply will tighten.  Fonterra’s Australian July milk collections dropped 22% compared to the same time last year.  Fonterra reports that many dairy farmers chose to dry off early follow the cuts to Australian milk prices back in May.

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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