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Agri-commodities update: Veg oil burns on biofuel

Problems in palm oil, slow Canadian canola and now a bigger US biodiesel mandate are seeing large gains in veg oil prices.

Currencies

The US Dollar got back to rallying against the other agri-exporter currencies overnight.  The greenback’s strength remains a negative for US$ commodity prices as markets adjust to the new levels.  The Australian Dollar fell but by less than others currencies. The Aussie starts today a little below 74¢.

Grains & Oilseeds

  • Wheat futures prices were mostly unchanged on Wednesday.  Chicago was the exception with some sharpish falls.  Weather forecasters have not changed their outlook all that much for the US hard red winter wheat region.  The market continues to monitor prospective protective snowfalls in early December.
  • ASX East January wheat futures on Wednesday at 231$.  Modest overnight moves in offshore futures and the Aussie Dollar again provide little direction.  Australian wheat prices though remain competitive in global markets.
  • Corn futures traded quietly ahead of the US Thanksgiving holiday.  Yesterday the US Environmental Protection Agency (EPA) raised the US renewable fuel obligations for 2017.  The annual ethanol requirement was raised from 14.5 to 15 billion gallons – higher than the 14.8 billion that had been proposed back in May.  The new target means an extra 500 million gallons of corn-based ethanol must be blended into the US fuel supply next year – boosting corn consumption by ~180 million bushels.  While that is certainly supportive for corn prices, the unanticipated extra is not large enough to be transformational for heavy US supplies.  The markets’ muted reaction on the day seemed to indicate as much.  The USDA is forecasting the US to end the 2016 season with a corn carryout of 2.4 billion bushels.
  • Oilseed prices were stronger Wednesday.  Soybean oil futures exploded to two-year highs on news that the EPA had raised US biodiesel targets for 2017.  US biodiesel is made mostly from soybean oil.  That larger than expected lift fuelled ideas that already tight vegetable oil supply would become even tighter in 2017.  While soybean futures lifted only modestly in response, canola (with its higher oil content) rallied strongly.  On the weather front, conditions in Brazil are forecast to remain almost ideal over the next week or so.  Traders remain concerned about the nascent threat of developing dryness in Argentina.  The drier November conditions are excellent for planting purposes, but those crops will eventually need some moisture in order to be well established. 

Cotton

US cotton futures fell modestly on Wednesday.  Yesterday China announced that the corporation which manages its national cotton reserves will become a wholly-owned subsidiary of the state grains stockpiler, Sinograin.  The move comes as part of a wider reform of China’s state-owned enterprises intended to reduce costs and raise efficiencies.  So Sinograin will inherit the legacy of bad cotton policies past.  Perhaps though the fact that they have inherited, rather than created, those huge stocks will allow them to focus more on the task at hand (i.e. selling them down).

Sugar

Sugar futures prices had another day of sharpish falls on Wednesday. The falls were similar across 2016 season contracts and subsequent seasons.  The trading pattern did not suggest any large scale investor selling even though there is very likely to be more.  Most buyers will have had their inclination to watch and wait bolstered by the day’s action.  Weather forecasters continue to expect wetter conditions in Brazil’s southern cane regions over the weekend.  The market will assess any problems for late season crushing in the region next week.  Australia’s cane regions looks likely to experience good harvesting weather until at least the weekend and, more than likely, into early next week.

Cattle

US live cattle futures managed to close at three-month highs on Wednesday, despite some early signs of weakness.  The market shrugged off USDA’s bearish cold storage numbers once reports of strong cash prices in the Fed Cattle Exchange began rolling in.  Australian spot cattle indicators were mixed on Wednesday, but didn’t make any big moves – the young cattle market dipped lower again, whereas finished cattle prices managed to regain a cent or so.

Dairy

NZX WMP futures recorded sharp falls on Wednesday.  Today’s early trade sees prices little changed, unlike the sharp falls we have seen to start the day this week.  WMP futures prices and GDT auction prices are now close to parity for most of the contracts.  The EU continues to report milk production numbers that are well down on this time last year.  The Dutch government has proposed a scheme that will see a cut more than ten percent in the nation’s dairy herd.  Milk supply developments continue to support these higher dairy price levels.

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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