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Agri-commodities update: Soybean dream machine splutters

Investors had conjured images of a perfect storm for soybeans this northern summer – the reality is its usually more complex self.

Currencies

The US Dollar mostly made modest gains against the other agri-exporter currencies on Friday.  The Brazilian Real was an exception worth noting.  Brazil’s central bank sounds less inclined cut interest rates.  Investors were expecting to hear a somewhat different message.  The Australian Dollar weakened about a third of a cent over Friday.  The Aussie starts today midway between 74½¢ and 74¾¢.

Grains & Oilseeds

  • Global wheat futures mostly rallied strongly on Friday.  Kansas futures in particular bounced when the September contract touched four dollars.  Kansas September gained nearly five percent from the day’s lows to closing price.  The move was no accidental surge in thin trading either - volumes were very large.  Investors had very large short positions in Chicago and Kansas futures as of last Tuesday.  These investors are a potential buyer.  US Wheat Associates published their harvest report on Friday.  The report confirmed that 2016 season winter wheat has lower protein levels.
  • ASX East wheat futures made some gains on Friday.  January 2017 was up 2½$ to close Friday evening at 245$/t.  Overnight markets provide little obvious guidance for trading today.  Australian wheat prices have a lead from Friday night’s action to rise modestly again today.  Australia’s winter wheat regions largely have reasonable or better soil moisture for now.
  • Corn futures were little changed on Friday.  Prices opened lower, but recovered much of that as the day progressed.  Friday’s positions report indicated that investors have continued to trim their long positions – though the magnitude of the fall last week was considerably.  The US Midwest is expected to receive enough rain this week to relieve any stress that may have result from last week’s hot and dry conditions.  Forecasters’ weather models though have added some warmer and drier weather back to the first week of August.  Forecasters say that this drier spell might prevail longer that the last one – but confidence model this far out is low.  Tomorrow’s US crop report will also hold considerable sway over the market’s near-term direction.
  • Oilseed prices were sharply lower Friday.  November soybeans fell below $10 a bushel, closing near three-month lows.  Friday’s position report indicated that investors have continued to make modest cuts to their long positions.  Last week’s much advertised heat wave waned more quickly than forecasters had first anticipated.  And, while pockets of dryness remain, much of the Midwest, Delta and Southeast are likely to receive solid rainfall this week to help replenish any lost topsoil moisture.  All eyes will be on tonight’s crop progress report to assess the impact (or perhaps lack thereof) the heat has had on US soybeans.  At the same time the market will also be warily eyeing the increased heat and reduced precipitation for the second half of forecasters’ two week outlook.  Australian canola crops are looking at additional rainfall over the next ten days or so, with conditions expected to remain very good.

Cotton

US cotton futures were lower Friday.  Prices fell about a cent early in the session but later recovered a little over half of that.  Friday’s positions reported showed that the funds continued to increase their long position in the week to last Tuesday, with investor positions now not far from highs last seen in 2013.  Forecasters expect some much needed precipitation in parts of western India this week.  The market is worried by dryness in the region.  The US Southern Plains is looking at restricted precipitation pattern for the next ten days or so.  Topsoil conditions in that region are already looking quite dry.  We expect to see some slight downward adjustments made to US conditions in tonight’s crop progress report. 

Sugar

Sugar futures prices were little changed on Friday - four out of five for the last week.  The market took a stronger turn late in the day.  The last rally might have been related to a stronger Brazilian Real (BRL).  If so, the BRL has gained plenty more once the sugar market closed so there might be further early gains today.  The market continues to look directionless.  To repeat ourselves, that is not a benign thing for the sugar market right now.  A big investor long position that has a continued rally as its raison d’etre is very likely to be sold if the market goes sideways.  Weather forecasters expect largely dry conditions for next ten days or so in southern Brazil's cane region.  The forecast suggests soil moisture along northern edge of that region will remain severely dry.

Dairy

NZX WMP futures were higher Friday.  The lift was largely in the late 2016 and 2017 contracts, with some contracts up by 30-40$.  DCANZ released their monthly NZ output figures late last week.  Total NZ June milk production fell by just 0.7% year-on-year.  June, the first month in the NZ 2016/17 season, is also the seasonal low point for production and so is fairly insignificant to the overall supply picture. We expect NZ production will start to tighten more notably as the season progresses.  The recent run of rises in late 2016 futures prices suggests that the market is of that opinion too.

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