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Agri-commodities update: Bullish dairy prices fall short of futures lead

Another GDT auction where the physical market falls well short of the futures lead.


The US Dollar had no broad trend to speak of in desultory trading.  The Australian dollar continues to push up towards recent highs.  Higher hard commodity prices, especially iron ore and coal, continue to buoy the Aussie to start today a little under 76¾¢.

Grains & Oilseeds

  • Wheat futures were largely unchanged on Tuesday and featured only a little localised volatility.  Weather forecasters continue to expect western regions of US hard red winter wheat country to remain dry for the next week or so.  High temperatures around the region has accelerated drying in the past few days.  There is still time for the region to get enough rain, and for crops to be able to use that rain, so there is not yet a widespread problem.  The market will though be keeping a close eye on the region.  Southern Russia and western Kazakhstan also remain on the watchlist. 
  • ASX East January wheat futures gave up another half-dollar on Tuesday to close at 239$.  Australian basis is little changed and remains in a competitive zone.  Weather forecasters expect mostly crop-friendly conditions in eastern Australia.  The drier trend is alleviating some of the worst fears for Australian wheat quality and quantity.  Crop estimates still seem to be creeping higher too.  Milling grade prices are holding up well despite that but feed grade prices have fallen sharply. 
  • Corn futures finished Tuesday little changed.  Prices started the day on a stronger tack, but later look to have been dragged back in sympathy with a weaker soy market.  After recent rainfall in South America, and drier conditions now prevailing in the US, the near-term weather outlook is broadly non-threatening for most major corn producers. 
  • Oilseeds prices had a mixed Tuesday - soybeans eased a shade, while canola futures continued to build on their recent strength.  Soybeans did get some early support from a large sale of US 'beans to China.  A later plunge in palm oil futures put some downward pressure on prices to curtail the gains.  Canola futures, despite lower veg oil prices and a higher Canadian Dollar, still managed to close Tuesday in positive territory.  Rains in the Canadian Prairies have abated but the market remains concerned about cold conditions that are prolonging drying times. 


US cotton futures finished little changed on Tuesday.  An attempt to test September highs failed and the market erased the day's earlier gains.  The news flow was light yesterday so the lack of fresh information was likely a factor.  US weather has largely been supportive of fieldwork this week.  Forecasters say that the Delta, Southeast and Texas will see increasing chances for rainfall next week, but at this stage expect it to be erratic and light.


Sugar futures prices were little changed in trading so dull that we really must apologise for wasting your time with this sentence. 


Australian spot cattle indicators continued to correct lower on Tuesday.  The EYCI closed below 700c/kg cwt for the first time since early August. The restocker component of the market remains strong, but feeder and trade cattle have been selling to cheaper trends.  The drier turn in the weather is seeing supply catch up after several weeks of rain-reduced offerings.  Processors are operating at less than full capacity in many cases though, so last week's 18% increase in the eastern states kill would have been a large injection of cattle to absorb on reduced shifts.  We expect the market to continue weaker in the near-term as offerings seasonally increase, but should level off once processors adjust their operations to reflect available numbers.  Overall supply is still expected to remain historically tight through to 2017.  In the US markets, activity in the cash trade remains light but live cattle futures have lifted over the past few sessions. With US prices having hit six-year lows last week, traders and investors have started to engage in some profit taking.


The latest GDT auction did not run to the bullish lead from the futures market.  The auction was decidedly mixed with a range of rises and falls across the different dairy products.  Such a large gap between the auction and the WMP futures may see the latter retreat for several days.  Will WMP futures retreat almost all the way as they did after the last auction (which had a similar gap)?  Possibly yes but we do not see futures prices as being out of sync with the accumulating evidence that global milk production is declining sharply enough to restore balance to the supply-demand force.  To boot, parts of the NZ’s north island dairy regions are finding their way onto our watchlist because they are too wet.  Parts of Waikato got around 150% of their usual rainfall in September.  The vast bulk of that came late in the month too – at one point in September we were worried the region was on drying trend.  The first half of October has been at least as wet.  Dairy country is generally wet anyway but even by those standards this is too much.  Soil moisture profiles are very wet and getting wetter.  That, our NZ colleague Nathan Penny reports, is resulting in cows trampling pasture into the mud, along with much of its spring growth potential, as well as significant losses of milk production here and now.

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.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.


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