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Agri-commodities update: Dairy futures foretell the recovery?

NZX WMP futures are suggesting a stronger Global Dairy Trade auction tonight as the market looks ahead to tighter supply conditions later this year.

Currencies

Currency markets were largely quiet on Monday.  Agri-exporters’ currencies were mostly little changed on the greenback.  The NZ Dollar was one exception, falling sharply this morning.  The RBNZ has proposed making it harder for investors to borrow to invest in property.  Some (not including ourselves) had been concerned that hot NZ property markets might act as a “handbrake” on the RBNZ cutting interest rates.  The RBNZ’s proposal will release any handbrake on further interest rate cuts.  The Australian Dollar by contrast traded a very modest range on Monday.  The Aussie starts today a little above 75¾¢.

Grains & Oilseeds

—    Wheat futures prices gained on Monday.  The US winter wheat contracts recorded the larger gains.  US crop conditions and progress reports did not suggest any new issues with winter or spring crops.  Higher corn prices provided the direction with wheat’s current tight link to feed.

—    ASX East wheat futures prices fell on Monday.  January last traded at 245$/t to set a new season low.  Australian wheat prices, pre-trade today, are now back in line with global prices.  Or perhaps even a shade cheap – it has been quite some time since we said that.  Given alignment with global prices the pressure for lower prices will now abate somewhat - but only somewhat.  Lower global prices and/or a stronger Australian dollar can still take Australian price levels lower.

—    Corn futures prices lifted modestly in another day of choppy, weather-driven trade.  US crop conditions remain in excellent shape –none too surprising given the favourable rainfall seen over the past few weeks.  Monday’s midday weather model runs though now suggests that the US might see an additional high pressure ridge moving from the west and into the US Plains mid-next week.  Forecasters are worried that the ridge might also push into the heart of the Midwest.  Earlier models had suggested the Midwest would receive a welcome break next week.  Soil moisture is likely to be considerably lower after this week’s hot spell, so additional crop stress could start to impact on yields.  .

—    Soybean futures firmed on Monday, while canola prices were little changed.  The USDA reported that US soybeans conditions were steady on last week, with 71% of the crop still in good to excellent condition.  That inspired a weak start to the day.  Prices later turned high after midday weather model runs suggested some additional dryness for the US Midwest and Plains mid-next week.  August weather also remains highly uncertain and that will keep trading volatile given it is the critical development month for US ‘beans.

Cotton

Cotton futures were mixed on Monday.  Nearby contracts eased a shade, while prices for later dated contracts were closed a little higher.  The percentage of US cotton in good to excellent condition was steady on the previous week.  Forecasters though say that the US Southern Plains is looking at another week of limited rainfall and warm to hot temperatures.  If the forecasts evolve as advertised then cotton conditions might decline next week.

Sugar

Sugar futures prices were little changed on Monday after some modest zigs and zags.  Spreads were similarly little changed.  Archer-Daniels-Midland Co (ADM), the “A” of the big four ABCD agri-commodity traders, is reported to be quitting the sugar trading business.  ADM was a late starter in the business but it nevertheless is a sign that a crowded business is thinning its ranks.

Dairy

NZX WMP futures were largely unchanged Monday.  Prices have though opened strongly higher this morning.  NZX December is up 45$ in early trade.  Tonight’s GDT auction is pointing to a 3-4% rise in WMP prices overall, though the results are likely to vary across each contract.

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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