WMP futures continued to make strong gains to suggest tonight’s GDT auction will post a WMP price rise of around 10%.
The US Dollar was a little weaker on Monday without making any new ground. The greenback though remains in the neighbourhood of highs rather than lows against most of the agri-exporter currencies. The Australian dollar is something of an exception on both change and neighbourhood. The Aussie starts today largely unchanged from where it started yesterday at about 76¼¢. And that is closer to the high end of a roughly 74-77¢ trading range that we’ve seen of late. Hard commodity prices are giving the Aussie an extra leg up – for now. The prices of “bulks”, iron ore and coal, are higher. We expect Australia to sell more and more bulk commodities, but we do not expect these price levels to persist. With lower, or perhaps even unchanged, prices the Aussie’s premium among the commodity currencies would likely decline.
Grains & Oilseeds
- Wheat futures made further modest gains on Monday. Most of them did so without trading past the highs seen on during the day last Friday. Weather forecasters expect western regions of US hard red winter wheat country to remain dry for the next week, week and a half. The mets can see a rain event evolving for the region in the weather models at the two-week horizon. That “event” might make the market pause and watch for a while. At that horizon though mets will be very reluctant to add the event to their forecasts because it is quite likely it will disappear in subsequent model runs. The region of course remains on our watchlist. In the Black Sea region, southern Russia and western Kazakhstan remain on the watchlist. The Ukraine has had enough rain for now and so is off the watchlist.
- ASX East January wheat futures gave up a half-dollar to close at 239½$ - just off two month highs. Australian basis remains around competitive, but certainly not cheap, in the milling grades. Weather forecasters expect mostly crop-friendly conditions in Australia. Some parts of Victorian grain region may get a little more rain but forecasters do not expect that to linger. Cool temperatures are though still slowing drying.
- Corn futures prices were little changed on Monday. A rally in the soybean market was supportive, but more active farmer selling capped further gains in corn. Even sideways trading though will be significant. Another day of prices not going lower means measures of downward momentum weaken further. Investors will have the exit light flashing on their short position. On the weather front, conditions are looking largely non-threatening in the near-term. Forecasters say the US Midwest will face only limited harvest delays in the next week or so. And the dry areas in South America on our watchlisted have shrunk considerably following good weekend rain.
- Oilseed futures advanced on Monday. The soybean market got a boost when US crush data outpaced analysts' expeditions. And continued export interest for US 'beans added to the day's tone. The US harvest should progress well with only minor rain interruptions expected over the next week or so. Harvesting was 62% complete as of the end of last week - only a shade behind normal. Forecasters say Argentina's growing regions received beneficial rainfall over the weekend, with follow-up showers are expected this week too. The forecast then turns drier for next week which will allow planting to accelerate. If weather unfolds as advertised then there won't be much cause for concern with Argentine corps. The USDA though has revised Argentina's planted soybean area down. Strong competition from competing crops (mostly corn and sunflower) means soybean production is now forecast at 55mmt (previously 57mmt).
US cotton futures made modest gains on Monday. The US cotton harvest is ahead of schedule, with fieldwork having charged ahead in the Delta and Southern Plains regions. Fieldwork in the Carolinas though came to a near standstill last week. Many areas in the southeast are still recovering from the impact of Hurricane Matthew. The overall quality of the crop was revised down one percentage point, to 47% good-to-excellent condition. We suspect there may be more downward revisions to come too as damage in the southeast continues to be assessed. Around 35% of North Carolina's cotton crop is already in poor to very poor condition.
Sugar futures prices made sharp gains on Monday. Despite that, prices did not end at novel levels, nor anywhere near them. The directionless, low volume volatility that has defined October continues. Season 2017 and 2018 prices are a little higher.
The EYCI experienced a sharpish fall on Monday. Processors across the country have generally lowered their direct rates for the week ahead too. The weaker price trends are reflective of the bounce back in last week's eastern states slaughter. While still historically low, slaughter numbers were up almost 20% on the previous week. On the trade front, Australian beef exports to Korea are reportedly closing in on safeguard levels. Korea is one of the only major Australian beef markets to which export volumes have not slid sharply this year. While the Korea-Australia FTA will eliminate beef tariffs by 2028, a discretionary safeguard mechanism remains in place throughout the phase-out period. With 2016 YTD exports very close to triggering that level (160,829 tonnes), Korea is expected to raise the tariff on Australian beef from 32% to 40% for the remainder of the year. By comparison, US beef exports into Korea currently face a 26.7% tariff.
WMP futures prices gained on Monday, with sharp gains in the early-to-mid 2017 prices the standout on the day. Prices though remain below the highs set in September. A GDT auction looms on tonight as the acid test for the market’s hefty gains. The futures foreshadow a rise in WMP prices of around 10%.
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