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Corn gets down; dry July a joke in Iowa town

A dry US July, heavily backed by investors, looks less threatening each day – there is still time though for that to change.

Currencies

The US Dollar surged on Tuesday against many of the agri-exporter currencies.  The greenback’s gains were hefty but the levels now trading are still some way off recent highs.  The Australian Dollar was part of that broader pattern overnight.  Local concerns meant though the Aussie was already weakening by that time.  The RBA, in the eyes of some, looks more likely to cut interest rates again.  The Aussie has fallen a cent over the past day or so to start today a little over 75¢.

Grains & Oilseeds

  • US wheat futures prices fell sharply on Tuesday.  Plunging corn prices dragged wheat into their slipstream.  Kansas wheat prices are sharply lower but did not fall by enough to prevent their premium to corn increasing.  Buyers though again appeared with hefty purchases when Kansas September touched 410US¢/bl.  The emergence of buyers again at that level suggests the buying is about the wheat level rather than the spreads to corn.
  • ASX East wheat futures made small gains on Tuesday.  January 2017 climbed 1½$ from season lows to close at 246½$/t.  The weaker Australian Dollar has taken some of the sting from lower global prices.  Nevertheless, since the ASX market last traded, wheat prices have fallen by more than the Aussie.  We expect the day will start with a weaker bias.
  • Corn futures prices tumbled on Tuesday.  CBOT December was back 4%.  US crop areas will continue to dry down this week through the Midwest, Delta and Southeast but, beyond that, the weather outlook remains less threatening.  US crops are in such good shape at this point the heat and dryness will have to persist well into August to prompt significant cuts to production.  .
  • Oilseed futures were lower Tuesday, weighed down by more benign weather forecasts for US crops.  Soybean prices plunged 3½%.  Canola also closed lower but fared a little better thanks to a weaker Canadian Dollar and strength in palm oil futures.

Cotton

US cotton futures were modestly lower Tuesday.  China continues to sell almost all cotton on offer at daily state reserve auctions, despite rising prices.  Reserve sale prices are now above those on the Zhengzhou futures market and the domestic cotton indexes.  The cotton market has long been searching for signs of renewed consumption demand.  Rapidly rising Chinese reserve prices suggests that China’s appetite for cotton is now returning.  The state reserve’s ability to continue to meet that demand this season though will dictate how much cotton China needs to import.  That will be a function of both reserve price and available quality.  We think China is probably auctioning off the best of its stocks first.  Once prices are too high or quality is too low, mills may find it more profitable to start import cotton again.  At this point though, state reserves are still considerably cheaper for mills to purchase than out-of-quota imports.

Sugar

Sugar futures prices continued to trade quietly on Tuesday – “exhibit closed”.  Every day that trades like this though is undermining the rationale for momentum investors to remain long.  We think the market has a weaker bias for that reason.

Dairy

NZX WMP futures prices were mostly higher on Tuesday. Once again though the results of the Global Dairy Trade auction undershot what futures market had foretold.  Physical WMP prices posted a 2% lift overall, though the futures market had been pointing to a 4% rise.  The modest improvement is encouraging nonetheless.  As are the larger gains in later dated 2016 contracts.  Both suggest that traders are anticipating tighter global supply as later in the season.  NZ pasture conditions are looking very good, so the anticipated sharp decline in milk output is likely to rest on farmers deliberate decisions to scale back milk production.

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