Kansas wheat prices again find heavy support at four dollars but other wheat futures, Chicago and ASX East among them, hit new season lows.
The US Dollar continue to edge higher against many of the agri-exporter currencies on Wednesday. The greenback’s gains were small. Commodity traders though will be viewing this as a third or fourth day of greenback gains so that translates into downward pressure on US$ commodity prices. The Australian Dollar was part of that broader pattern over the past day, easing a quarter cent to 74¾¢. The NZ Dollar has declined sharply this morning. NZ’s Reserve Bank said this morning they will cut interest rates some more. More traders and investors looking at Australia may just conclude (as many already have) that the same logic applies to Australia too. The Aussie will therefore have a weaker bias to start the day at least.
Grains & Oilseeds
- Wheat futures were weaker on Wednesday. Chicago and Kansas winter wheat contracts both had sharp price falls. Chicago September made new season lows. Kansas September did not make new lows but came close. The reason it did not was that, once again, sustained heavy buying emerged as prices neared four dollars. We are starting to look for signs that the market has fallen enough to deal with swelling US Hard Red Winter (HRW) inventory. Kansas-Chicago spreads narrowing – so Kansas is falling by less – is perhaps such a sign. A stronger greenback though would mean that will not initially be obvious.
- ASX East wheat futures fell sharply on Wednesday. January 2017 fell 4$ to at 242½$/t to set a new season low. Lower global prices will leave the market with a weaker bias to start today though Australian prices no longer look expensive in global terms.
- Corn futures prices were modestly weaker Wednesday. Midday weather models pointed to a return to cooler temperatures in the US Midwest by Friday. The models also added some more rainfall to the US two week outlook. Unsurprisingly, more grain price pain ensued. Ethanol prices also tumbled on Wednesday to add to the sting. Ethanol production and inventories both rose sharply last week, suggesting softer corn demand from the biofuels industry in the near-term.
- Soybean prices were sharply lower Wednesday. Market mentality is bearish on the back of improving late-July forecasts for US crop areas. August weather remains an enigma though, with little consensus between forecasters as yet, so we would not rule out the possibility of a turnaround. Market chatter is also focused on the impact of China’s soybean reserve sales. The uptake at auctions this week has been strong. Analysts are worried that could dampen Chinese import demand for US ‘beans in the season ahead.
US cotton futures fell for a second day. Prices slipped early in the session and spent the remainder of the day trading sideways. A stronger US Dollar weighed on the market, as did the broader weakness seen across grains markets. The low volumes traded on Wednesday though are more worrisome in our view. The market’s spectacular rise from the ashes has been driven almost entirely by investor buying. Stalling momentum could quickly turn them into sellers. The market now needs some fresh news to keep long investors placated. Perhaps confirmation of the impact of heavy flooding in China’s Yangtze River Basin will do the trick. Weather forecasters estimate that more than a quarter of China’s cotton crop has been impacted, to varying degrees, by the excessive rainfall seen in early July. Official estimates of crop losses are probably still a few weeks away but that will not prevent the market from taking a guess at the damage.
Sugar had a third day of quiet trading on Wednesday. The market started on a weak tack but that petered out into directionless meandering for much of the day. Weather was not the focus of the day but a couple of issues are worth noting. Australia's cane regions have received a lot of rain over the past week but now seem set for a welcome drier period. The drier period means any impact on Australian sugar production is likely to be limited. The other is the very dry conditions that persist along northern edge of southern Brazil's cane regions. Farmers and millers alike prefer largely dry conditions during crushing. Completely dry conditions are another matter. Sao Paulo’s northern quarter has very limited subsoil moisture. A little further north, into Minas Gerais and Goias, there is no subsoil moisture. Topsoils in both areas are dry. Dry conditions do boost sugar recovery up to a point but, when too dry, the cane’s overall health will suffer. That would affect production this season. Next season’s production might also be affected too. Newly planted cane needs enough soil moisture to establish properly as well as grow.
NZX WMP futures prices were mostly higher Wednesday. The market was buoyed by a modest improvement in WMP physical pricing at Tuesday night’s GDT auction.
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