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Agri-commodities update: Soybean dream machine continues to splutter

Oilseed prices continue to weaken as investors sell decidedly abnormal long positions in response to the US weather being decidedly normal.

Currencies

The US Dollar was mostly little changed against the agri-exporter currencies on Monday.  The Canadian Dollar was an exception as it, both, fell sharply and traded the lowest level in several months.  Canada’s economic fortunes are heavily tied to crude oil.  Oil prices also fell the lowest level in several months overnight, dragging the Loonie with it.  The Australian Dollar all but had a bye to begin the week.  The Aussie is little changed this morning at just below 74¾¢. 

Grains and Oilseeds

  • Global wheat futures had a mixed Monday.  Paris futures fell sharply from new highs.  EU wheat crops are smaller and lower quality which has been a catalyst for the rally but clearly some profit-taking emerged in Paris overnight.  Chicago and Kansas futures though continued to gain.  Both had some big zigs and zags to suggest there was, both, a fall to follow Paris and some investor buying to cut shorts. 
  • ASX East wheat futures were little changed on Monday.  January 2017 was up 1½$ to close at 246½$/t.  Overnight markets point to firmer prices again today.  Australian wheat prices are looking better value in global terms this morning. 
  • Corn futures closed little changed on Monday, despite plenty of zigs and zags throughout the day.  US corn crop conditions came in steady on the previous week and so remains in excellent shape.  The market had already surmised as much anyway.  While weather this week looks almost ideal in the Midwest, forecasters are still flagging the potential for a return to drier and warmer conditions next week.  Much of the corn crop is now well into the silking stage though and so moving beyond the point where drier conditions present a large threat to the US balance sheet.
  • Oilseed prices were lower on Monday – soybeans sharply, canola a little more modestly.  November ‘beans are now at three month lows.  The market’s downward momentum was extended after a bearish crop report.  Last week’s heat wave had very little impact on US soybean conditions, with the percentage of US soybeans considered to be in good to excellent condition unchanged.  And, while investors have been reducing their positions for a number of weeks now, the soybean market remains heavily long.  Consequently oilseed prices are at risk of more fund selling if August weather turns out to be similarly benign.  There are also some emerging concerns about lower Chinese demand for US beans.  China has announced it will auction another 600,000 tonnes of state soybean reserves later this week.  Last week China sold around 57% of a similar reserve offering.  Flooding in the Yangtze River Basin in early July has also caused damage to farms and losses in hog inventories, which could hurt demand for feed.

Cotton

US cotton futures were just a shade weaker Monday.  Prices have largely meandered around the 72-73¢ level for the past few sessions, with additional gains capped by active trade selling.  US cotton conditions saw a slight downgrade last week following very hot temperatures across the Southern Plains.  Some relief is forecast to arrive this week in the form of regular rounds of rainfall, though forecasters say temperatures could remain higher than is usual. 

Sugar

Sugar futures prices rallied sharply on Monday.  For now, the market is ticking the “sideways” box.  We therefore still think the path of least resistance is down.  A close above 19.91¢ (New York October) would though force us to question that view.  Analysts are projecting that south Brazil sugar production will be much stronger in the first half of July. The data are due for publication next Monday.  Weather forecasters expect the regions northern edge to get very little rainfall over the next week or so.  We suspect that, should that forecast be largely realised, the northern edge is going to continue too dry.  Australia’s cane regions are also likely to see little rainfall over the next week or so.  The dry period should speed the process of drying out after recent deluges.  One grower mentioned to us that they were still a week, perhaps more, away from getting back to harvesting.

Dairy

NZX WMP futures had a quiet Monday.  Most contracts closed unchanged.

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