The big NZ dairy processor’s farmgate milk price hits six and gave their assent to the recent rise in dairy prices.
The US Dollar continued its remorseless grind higher, and often to novel levels, against the other agri-exporter currencies on Thursday. The greenback’s strength remains a headwind for US$ prices in general – but it does not always outweigh other influences. The Australian Dollar conformed to the broader pattern as it fell to the lowest levels since mid-year. The Aussie has again dropped about ¾¢ to start the day a little above 74¢.
Grains & Oilseeds
- Wheat futures gained on Thursday. The US Dollar was not headwind enough to offset some good news on US wheat exports. Hard Red Winter exports continue at a relatively fast pace. That suggests US wheat is finding buyers at these price levels. Given much of the surplus is in that wheat class that is supportive news for the wheat market. Weather forecasters expect a few precipitation events in the dry parts of the US hard red winter wheat region over the next week or so. The events are unlikely to produce lots of moisture but temperatures in the region are likely to be high enough to delay dormancy and so allow the crop to develop a little.
- ASX East January wheat futures lost another 2$ on Thursday to close yesterday evening at 224$ - contract lows. Australian wheat prices are looking as cheap as they have been for the best part of a year.
- Corn futures prices lifted on Thursday, despite the rallying greenback. US export sales for last week were encouragingly strong and above where analysts had pegged them. A fresh sale was announced yesterday too which provided some additional support. The outlook for the supply side though remains very heavy. Argentina is now reporting better fieldwork conditions as somewhat drier conditions prevail. Argentina’s corn crop is now about 40% planted. And the two week outlook for Brazil remains largely favourable, so no major issues are anticipated for crops there.
- Oilseeds futures were a little higher Thursday. US soybean export sales for last week were solid – about where the market had been expecting. The problem now though is that, as South American price premiums start to fall and currency fluctuations are again moving in favour of other agri-exporters, any material pickup in US pricing will start to put a handbrake on those exports. Argentine soybean planting is now about a quarter complete. The pickup in the planting pace after an excessively wet October has seen the Buenos Aires Grains Exchange opt to leave the forecast soybean area unchanged (earlier they had warned of a to cut their planting estimate). Drier, but not totally dry, weather is expected in Argentina for the week ahead. Cold temperatures were recorded yesterday morning in the south of the country, but forecasters say they were not cold enough to cause freezes that would threaten crop development.
US cotton futures closed Thursday with modest gains. US export sales were strong last week, despite the rallying greenback. This week's even higher prices and higher US Dollar will be the next test for export demand. Support though is also stemming from the halt in the Indian cotton cash trade following a ban on high-currency bills. And there’s some concern floating around about the quality of China’s cotton crop as late season harvesting has been dogged by too much rain. Problems with the crop would support ideas of China having to source additional cotton from the world market sooner rather than later. In the US, weather is set to remain largely favourable. We expect that the US harvest may have caught up some ground this week amid the fine and dry conditions.
Sugar prices continued to edge lower on Thursday. The falls were modest but prices ended the day at new lows. Trading volume was more subdued. The big investor long probably remains large enough to be influential. Weather forecasters continue to expect supportive conditions for late crushing in both south Brazil and Australia for almost another week. Both regions look more likely to get some rain thereafter. Neither region is generally “dry” as the year rolls out of what passes for winter in the southern tropics so rain falling is not itself a problem for crushing. The amount of rain is obviously important but so too is the persistence.
US live cattle futures finished just a shade higher Thursday. Expectations for a bullish cattle on feed report and the higher cash prices paid by packers this week would suggest some may be worried about a temporary shortage developing in the market early next year. Blizzard conditions are expected in the northern Plains today too which may add to bullish sentiment. Forecasters say the heaviest snow will fall in the Dakotas and Minnesota, causing some stress to livestock. By contrast, US wholesale beef prices have struggled to push off the lows as protein supplies remain ample. Packer margins have tightened considerably as a result (though they still remain historically high). The Trump-inspired US$ rally has certainly not done the US beef export market any favours. The USDA reported abysmal export numbers from last week - sales almost halved to just 10kt. Australian spot cattle indicators remained somewhat directionless on Thursday. Heavier slaughter cattle were firm to dearer, while the young cattle market closed a shade lower. The EYCI continues to hover around 650A¢/kg cwt level.
NZX WMP futures were a shade lower on Thursday. Fonterra NZ announced this morning that they will increase the price they pay to farmers to 6NZ$/kgMS. We are not surprised by this – Nathan Penny, our NZ colleague, has been expecting precisely this upgrade for a long time. Many others have joined him quite recently. The announcement then, is not a total surprise to the market but nonetheless might still have an impact on dairy prices. Fonterra is committing to a higher milk price so we can infer that they are confident the rise in prices is no temporary matter. Moreover, reversing the rise later would cause the company no end of grief, so we can further infer they are highly confident. The signal then is that one of the biggest milk processors in the world – i.e. they are not speaking from some unrepresentative niche – is highly confident about the rise in dairy prices. We think this same process will play out in Australia as well at some point. Australia’s milk processors though might not be able to afford to be so generous in the 2016 season.
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