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Agri Commodities Update: wheat takes root

Global wheat prices continue to edge higher as northern harvest pressures abate, while dairy prices continues to lift themselves from the fog.

Currencies

The US Dollar lost ground on the other agri-exporter currencies overnight.  The changes were modest but the greenback’s weakness means many agri-exporter currencies are flirting with near-term highs.  The consequence is that, with US$ prices broadly steady (albeit volatile), local currency prices are falling.  The Australian Dollar is in that category.  The Aussie traded a shade above 78¢ in April and starts today just above 76¾¢.

Grains & Oilseeds

  • US wheat futures made modest gains on Thursday.  Nonetheless the price levels do have some significance.  Chicago and Kansas December posted the highest closes since late July.  We are not expecting any big surge in prices but their edging higher is a telling development.  US wheat prices were at serious risk of meltdown this northern summer as supply bulged at harvest.  That harvest pressure seems to be abating so the risk of that meltdown is probably now in the rear-view mirror.
  • ASX East January wheat futures edged away from season lows to close at 235$.  Global wheat prices are providing a modicum of support but that is being offset (at least) by the Aussie Dollar’s strength.  We are wondering how long this drop below $240 will persist since, at these levels, Australia will be a competitive wheat origin.  Importantly we do not want imply that sellers should be patient.  Australian basis is at these levels because there is still a substantial quantity of grain to move.
  • Corn futures were modestly higher on Thursday.  CBOT December spent much of the day drifting lower before a sharp burst of buying activity prompted an impressive rally.  Total US corn export sales came in a little lower than the previous week, but the market was unconcerned given that the fall was accounted for by old crop sales.  New crop sales remained very strong at over 1mmt last week, with the USDA reporting a fresh sale on Thursday too.
  • Oilseed futures prices closed the day little changed overall.  Markets though took the scenic route to get there.  November soybeans drifted below $10 before a sharp rally erased those losses.  November canola zigged and zagged several times.  Weakness in the vegetable oil complex weighed early in the day as palm oil futures plunged.  The USDA though later reported another strong week of US soybean export sales, which continues to lend credibility to forecasts for record demand.

Cotton

US cotton futures edged a shade higher on Thursday.  The market drew some support from a good week of US export sales.  China’s July cotton imports only fell 10% year-on-year – not terribly impressive but, considering China’s June imports were less than half of year-ago levels, not too bad either.  India and the US are both looking a plenty of rain this weekend though, so we might see some selling today.

Sugar

Sugar futures prices continued their hefty, but directionless, day-to-day volatility.  Trading volumes remain modest yet they still manage to move prices by sizeable amounts.  The market looks to be dominated by low volume trading that quickly finds triggers and stops for a variety of players that moves prices around yet none of it has large enough trading volume to suggest real conviction.  Some, despite that, still want to pin every move on some piece of fundamental news.  We do think that headlines generate trading.  In this case they have been about southern Brazil’s production.  We are sceptical though that “headlines” and “news” amount to the same thing.

Dairy

NZX WMP futures prices rallied again on Thursday – and have opened strongly this morning too.  2017 contracts are now sitting above the US$3,000/t level.  The recent price surge appears to have taken some players off guard.  Buyers are rushing to lock in prices now as a tighter (but not tight) supply state looms.  We would though caution that NZX WMP futures, given their lower (albeit improving) liquidity, can be prone to overshooting.  Volumes traded so far this week would be considered modest relative to the scale of price movements, so there is potential for some short-term backing and filling action as the market finds its legs at now much higher levels.  However we remain confident that the market is poised to move higher over the course of the 2016/17 season.

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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