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Agri Commodities Update: Sugar high higher

Sugar prices continued to gain Monday to see prompt sugar trade the highest levels since mid-2012.

Currencies

The US Dollar had a mixed Monday against the currencies of the other major agri-exporters.  The greenback, having now settled some way off near-term highs against most of those currencies, is not exerting much influence on US$ prices.  The Australian Dollar gained three-quarters of a cent on the greenback to start today at a bit under 75½¢.

Grains & Oilseeds

  • US wheat futures finished Monday little changed.  US markets have stopped regaining the ground lost after Egypt’s ergot-free wheat policy was announced.  Paris futures had not regained much at all as they languished at, rather than somewhat above, season lows.  Last night that changed as Paris December traded the highest level since the before the Egypt’s ergot edict.  The trade seems to be expecting Egypt to change their policy.  Egypt had a third failed attempt at tendering for wheat overnight.  This third failure will perhaps convince Egypt’s authorities that they are asking for the impossible and abandon the zero ergot specification.  Prices would be boosted somewhat further if Egypt’s policy is indeed changed.  Whether prices regain all the lost ground is another question – was the Egypt issue the cause of all the decline, or just the catalyst that prompted selling for other reasons?
  • ASX East January wheat futures were unchanged on Monday at 238$.  Overnight guidance from a stronger Aussie is negative.  We don’t expect a lot of action in prices today in response to that.  Australia is slowly losing its pricing advantage with a higher dollar and higher domestic prices.  The trade’s worries about milling grade supply in eastern Australia, bolstered by a wet weekend, though suggests that will not automatically lead to lower prices.  Our WA network also reports some suspected frost damage from the weekend that might crimp production in Australia’s western grain region.
  • Corn futures prices finished a shade higher Monday.  A sizeable sale of US corn to Mexico provided some support, but the market is largely trading on the weather at the moment.  US crop conditions data (released after yesterday’s close) is likely to dominate trading today.  The US corn harvest is now 9% complete.  While that is a few points behind the five year average it is not disastrously so considering how soggy the US Midwest has been.  Conditions will remain wetter than is ideal this week, but forecasters say growers should still be able to get in the fields between forecast rain events.  South America, by contrast, is looking too dry.  Central Brazil received some welcome (albeit light) rain over the weekend.  Additional showers this week should encourage some planting progress.  Argentina’s corn regions though have some widespread areas of parched soils.
  • Oilseed futures made solid gains on Monday, propelled higher by a rally in the rival palm oil market.  Canola, with its higher oil content, benefitted the most on the day.  The soybean market will continue to watch wet conditions in the US Midwest closely, but Monday’s crop conditions report suggested crop quality is still looking good.  No daily sales of US soybeans were reported Monday.  However, with China now back from last week’s long holiday, we anticipate a few big sales to crop up as Chinese traders may have some catch up buying to do.

Cotton

US cotton futures had a wild Monday, touching highs near 69¢ and lows just above 67¢.  The market ended the day though on a sharp rally.  The US cotton harvest was about 6% complete as of last week – only a touch behind average – and crop conditions were slightly improved.  Weather forecasters though say that weekend storms that brought hail and strong winds to West Texas may have done some damage since.  The region should dry down over the next few days, but expectations for rainfall to return this weekend will keep the market jumpy.  China’s National Cotton Information Centre yesterday raised its forecast for China’ 2016 output 2% to 4.92m tonnes.  Australian forecasters are also upping their expectations for the 2016 season, with production forecasts raised 7% to 875k tonnes.  Area in Australia is expected to lift sharply on higher global prices and improved water availability.

Cotton

US cotton futures had a wild Monday, touching highs near 69¢ and lows just above 67¢.  The market ended the day though on a sharp rally.  The US cotton harvest was about 6% complete as of last week – only a touch behind average – and crop conditions were slightly improved.  Weather forecasters though say that weekend storms that brought hail and strong winds to West Texas may have done some damage since.  The region should dry down over the next few days, but expectations for rainfall to return this weekend will keep the market jumpy.  China’s National Cotton Information Centre yesterday raised its forecast for China’ 2016 output 2% to 4.92m tonnes.  Australian forecasters are also upping their expectations for the 2016 season, with production forecasts raised 7% to 875k tonnes.  Area in Australia is expected to lift sharply on higher global prices and improved water availability.

Sugar

Sugar futures prices continued to make new highs on Monday.  A wave of buying took the New York March close to 23¢.  Sugar prices were last at that level in mid-2012.  The market closed well off that level as another, smaller wave of selling emerged as the market neared the close.  The selling is coming from producers taking advantage of the new higher price levels.  The rally has largely been in the 2016 season and first half 2017 season contracts (we think of this as a July-May contract cycle).  Later 2017 season contracts made some larger gains yesterday to catch up.  2018 season contracts continue to lag.  Generally the more distant contracts, in large part due to more limited liquidity, take some time to follow the moves in the closer contracts.  If the price levels persist in those closer contracts though then generally the more distant contracts follow that move gradually.

Cattle

Australian saleyard cattle indicators closed higher as Monday’s yardings remained rain restricted.  Young cattle saw the best gains, with the EYCI up 2½A¢/kg cwt, as restockers continue to underpin the eastern cattle market.  Pasture growth over the last few months has well above historical averages to support aggressive rebuilding.  Processors largely left their rates unchanged this week – an indication that, while pressure in the international beef market continues to mount, their need to source cattle is still limiting the ability to pass that pressure up the supply chain.  Weekly cattle slaughter remains more than 20% below year-ago levels across most states.  In the US market, domestic 90CL prices gave back about half of last week’s very sharp (21A¢/kg) gains.  Monday’s lift in the Aussie Dollar is also a negative and the sum of the two has returned Australian imported beef basis to only a small discount.

Dairy

WMP futures made modest gains ahead on Monday and continued on that tack in early trade today.  Tonight’s GDT auction will provide a test of the signal provided by the futures.

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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