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Agri-commodities update: The silent treatment

WMP futures didn’t budge yesterday, ignoring an indifferent GDT auction the night before, and maintain sizeable premiums to auction prices.

Currencies

Agri-exporter currencies were mostly stronger against the greenback on Wednesday.  The Australian Dollar is now close to recent highs as it takes the lead from higher bulk commodity prices.  The Aussie’s strength is an issue for local prices at this level - but a complex one.  Competitor currencies have had mixed fortunes, some are near highs too (the Brazilian Real) while others are near lows (the Euro).  The Aussie is about a half-cent higher today as it reaches towards 77¼¢.

Grains & Oilseeds

  • Wheat futures prices posted a mix of small gains and losses on Wednesday.  The day’s action had a solid feel.  An early dip in prices was erased in a quick rally at the start of the main trading window.  Chicago saw heavy buying as prices dipped towards the low.  Perhaps some investors found a level where they could exit some of their large long position.  Kansas futures closed at the highest level since late August despite the market, unsurprisingly, running into some sizeable selling at the day’s highs.  Weather forecasters continue to expect the west of US hard red winter wheat country to remain dry for another week or more.  The region remains a nascent issue.  Parts of southern Russia and western Kazakhstan also remain on the watchlist.
  • ASX East January wheat futures dropped a couple of dollars on Tuesday to close at 237$.  Australian basis is little changed after the move to stay in the competitive zone.  Weather forecasters expect mostly crop-friendly conditions in eastern Australia.  A rain event late in the week will provide some rain for summer crop regions but not be enough there, or elsewhere, to be an issue.  Wetter areas to the south will see the largely drier trend maintained.
  • Corn futures were higher Wednesday, largely following the gains made in soybeans.  US ethanol data was also supportive – last week ethanol production rose 3.7% and inventories fell to an 11-month low.  Aside from a few showers in the Midwest next week, the US outlook for the remainder of October looks favourable enough.  That will keep some pressure in pricing as the harvest continues to advance.  Our watchlisted areas in Brazil have received enough rainfall over the last few days to erase much of those near-term concerns about dryness.
  • Oilseed futures were modestly higher Wednesday, with November soybeans closing above their 200-day moving average.  The soybean market, despite ongoing harvest pressure, was boosted by news of another large sale of US ‘beans to unknown buyers.  A surge in crude oil prices also provided some broader commodity market buoyancy.  Canola futures continued to trade in a weather market.  Current forecasts suggest that Canada will again trend too wet next week, potentially adding further delays to an already protracted harvest.

Cotton

US futures prices and spreads were little changed Wednesday in another day of low volume, sideways trading.  Last week’s rally though has inverted the market.  While nearby 2017 prices are trading much higher levels, the gains in late 2017 and 2018 contracts have been far more grudging.  Weatherwise, some rain forecast for parts of the US Delta and Southeast will be unwelcome next week.  With the harvest in full swing these areas are looking for drier forecasts.  In Australia, southern Queensland is expected to see a few rounds of rain over the weekend which will aid planting conditions.

Sugar

Sugar prices continued on the same dull range trading path. For some of that big investor long this lack of direction is eventually going to be a problem.  “Eventually” is though probably still some time away.  The jump from about 21¢ to about 23¢ happened on a single day about a month ago.  Investors’ momentum metrics will, mostly, not drop that surge out of their figuring for some time.  Consequently, only the more sensitive trading rules will have been spooked out of the market to date.  For the others, where there is apparently more money, the signal is yet to come.

Cattle

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.

Dairy

NZX WMP futures responded to the mixed GDT auction results yesterday by doing nothing.  We had expected at least some decline in prices in response to the GDT auction rather than just the silent treatment.  Perhaps it is still to come.  The Waikato region in NZ has had a dry couple of days after recent, worrying, deluges. In Australia, Murray-Goulburn (MG) reported update seasonal expectations this morning.  MG reports that Victoria’s western and northern dairies are being affected by the severely wet weather in the past month or so and that this will lower production for the 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.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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