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Agri-commodities update: Palm the greese

Oilseed prices shot higher overnight after palm oil prices made hefty gains during the Asian trading day.

Currencies

The US Dollar retreated a little on the other agri-exporter currencies on Monday.  The greenback remains around recent highs.  The Australian Dollar made modest gains in line with that broader pattern.  The Aussie has gained almost a half cent as it nears 73¾¢ in early trading today. 

Grains & Oilseeds

  • Wheat futures saw modest moves, mostly gains, on Monday.  Weather forecasters seem to think that the storms forecast for the US’s hard red winter wheat region will yield only modest moisture.  Weather models are projecting a large storm system for the region at the start of December.  Meteorologists are highly sceptical the projection will be realised in its current form.  Nonetheless an event of some kind looks to be brewing.  The other feature of forecasts is declining temperatures in the region.  That of course makes any moisture accumulation moot for near-term crop development as dormancy spreads.  Where this ill-defined event might be relevant is that it might contain snowfall.  Tucking a poorly established wheat crop under an early blanket of protective snow might be just what the agronomist would order at this point.
  • ASX East January wheat futures gained 3$ on Monday to finish the evening session at 232$.  The market has now gained eight dollars in the past few days.  That means Australian pricing has largely adjusted to the dual benefit of higher global prices and a lower Aussie.  Not that Australian wheat looks expensive – it remains competitive in global markets.
  • Corn futures moved higher on Monday on the back of some short covering activity.  A weaker greenback, strong export inspections data and spillover support from soybeans all helped to underpin prices.  The US harvest is now pretty much over, so the weather focus will be entirely on South American crops from here on in.  Forecasters say Brazil will get a few helpful bouts of rain this week, while planting in Argentina will be expedited by drier conditions.
  • Oilseed futures prices shot higher on Monday.  A sharp rise in the Malaysian palm oil market was positive for ‘beans prices, as was a lift in Chinese commodity markets.  Both have been hugely volatile of late though, so the foundations of this rally look somewhat shaky.  We expect that any near-term gains in the soybean complex may prove to be relatively short lived.  The US soybean harvest is now over.  US farmers will be eager to sell into any rallies before importers’ attention starts to shift towards South American crops.  For now though, demand remains strong – weekly US soybean export inspections were even better than analysts had expected.  Forecasters continue to expect Brazil to enjoy wetter weather this week, while Argentina is slated to dry down.  Market chatter suggests there’s now a bit of concern building over Argentina looking too dry in the summer, but there’s still plenty of time for rainfall events to pop up in the forecasts.  Canola prices also rose Monday, albeit more modestly.  The trade is still worried that some of Canada’s crop will remain unharvested.  That concern is supporting prices, though a stronger Loonie limited the upside.  Forecasters say southeastern Australia’s harvest will be slowed by rain this week.  Fieldwork in WA should progress much more swiftly. 

Cotton

US cotton futures had a very quiet Monday.  India’s cash crunch continues to buoy prices.  Market chatter suggests a sizeable amount of India’s cotton exports will be delayed as farmers postpone sales.  That might create some selling opportunities for other major exporters in the meantime.  China’s late-season cotton harvesting continues to be interrupted by showers.  The rainy conditions have persisted for long enough now that forecasters expect some fibre quality declines.  China was already looking at a smaller harvest in 2016 on lower cotton acreage.  So problems with quality could speed up the timeline for more Chinese imports.  The outlook for Southern Hemisphere crops is very good – forecasters say both Brazil and Australia will be looking at large production potentials this season.

Sugar

Sugar futures prices had a sharpish bounce on Monday.  The whole suite of raw sugar futures contracts recorded near 20 point gains.  The market seems to have flinched as it neared 20¢.  Totemic numbers like 20¢ and thereabouts tend trigger trading for a wide variety reasons.  The market is likely to find seams of abrupt buying and selling around this level for a period.  Weather forecasters continue to expect wetter conditions in Brazil’s southern cane regions this week.  The market will keep an eye on how much, and for how long rain falls, in case it curtails late season crushing in the region.  Australia’s cane regions looks likely experience good harvesting weather until at least the weekend and, more than likely, into early next week.

Cattle

US live cattle futures lifted in active Monday trade.  The market drew strength from Friday’s cattle on feed report, which suggested fewer cattle had been placed in US feedlots in October.  The big US meat sweat certainly isn’t over, but fed cattle supply is now looking like it will be less burdensome in early 2017.  Analysts have described the outlook as ‘manageable’.  Prices are also drawing some support from expectations that weak wholesale beef demand will improve after Thursday’s Thanksgiving holiday.  Australian cattle prices had a mixed start to the week.  Trade steer prices jumped sharply, while most other indicators held close to firm.  Processors have generally held their direct-to-works rates steady this week too.  Many mixed farmers will have their attention focused on the harvest over the coming weeks, particularly as it is running a couple of weeks behind schedule in the east. That may see cattle supplies moderate in some regions.

Dairy

NZX WMP futures recorded sharp falls on Monday.  And prices are a shade weaker to start today.  Prices remain just a little short of recent highs.  The market seems to have lost impetus to rally further.  The decline in global milk production, both deliberate and accidental, is understood so the impact of further news of that sort becomes limited.  We still suspect consumers might be a little behind in purchasing – an idea that will be tested in next week’s GDT auction.

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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