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Agri-Commodities Update: Dairy font acknowledges market wisdom

Fonterra announces a lift in NZ milk prices to provide another sign that dairy's supply and demand is getting back into balance.


Foreign exchange markets did little of interest for agri-commodity markets on Tuesday.  The Australian Dollar is little changed from where it started yesterday at just below 76.25c.

Grains and Oilseeds

Wheat prices had mixed fortunes on Wednesday.  Minneapolis wheat futures continued to wilt as the market absorbed news about extra supply in Canada.  Paris futures though rallied as that market’s focus returned to diminished supply from the EU this season.  Kansas and Chicago prices were little changed. 

ASX East January wheat futures were about a dollar lower on Wednesday to close at a new season low of 233$.  Australian wheat looks competitive in global terms but is clearly still having a hard time drumming up enough demand as heavy global supplies seem to only be getting heavier.  Modest overnight moves in both US wheat markets and the Aussie Dollar provide little obvious direction for prices today. Farmers we spoke to in Dowerin, in the north of Australia’s western wheatbelt, yesterday report healthy crops that justify much of the optimism about Australia’s wheat crop.  Yields and quality might be capped a little as wet and/or windy weather has made crop management more difficult than usual.

Corn futures closed a touch weaker on Wednesday.  Observations from the Pro Farmer Midwestern crop tour suggest that US yields will probably be lower than current official forecasts.  The market though has largely shrugged that off.  Many were already sceptical of the numbers so perhaps the market has already accounted for lower yields in its pricing.  And the fact remains of course that the US crop, regardless of if it is a record or not, is still going to be very large.

Soybean futures were modestly lower Wednesday as the market's attention returns to the supply side.  Early results from the Pro Farmer Midwestern crop tour confirm that production potentials are indeed very large: near ideal August weather has ensured good crop development.  The market's tug-of-war between record supply and record demand continues.


US cotton futures moved lower on Wednesday.  Weather in the US and India remains largely supportive for crops, and so is keeping prices in check.  Both countries' top cotton growing regions are forecast to receive additional showers later this week.


Sugar futures prices fell sharply on Wednesday to erase much of the previous day's gains.  The October-March spread fell sharply to suggest the previous day's gains were something of an aberration. We are still some time away from practical constraints – investor contact rolls, trade physical calibration – that might force prices to break from their range. 


NZX WMP future were mostly a little weaker Wednesday.  This morning Fonterra announced that it had increased its 2016/17 forecast Farm Gate Milk Price from NZ$4.25 per MS to $4.75 per MS.  The fifty cent rise comes about following several rounds of stronger GDT auction pricing, though Fonterra points out that some of the improvement has been offset by a higher NZ Dollar.  Fonterra's lift to milk prices will be viewed as further confirmation that global supply and demand are now rebalancing.  Futures pricing should draw some support from that today.

Learn more

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This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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