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Sliding door shuts on another soybean weather worry

Soybean prices fell sharply back towards recent lows as worries about early supplies faded.  Canola prices fell in sympathy.

Currencies

The US Dollar had a mixed day against the other agri-exporter currencies, posting a range of mostly minor gains and losses.  The greenback’s resulting levels were mostly benign.  The NZ Dollar is something of an exception as it now trades near recent lows.  The Australian dollar has drifted a quarter cent lower to start this week a little under 76¼¢.

Grains & Oilseeds

  • Global wheat futures were changed on Friday.  Minneapolis spring wheat futures continue to climb as strongish export sales gives the trade confidence to accumulate grain.
  • ASX East January wheat futures fell 3$ to finish last week at 229$.  Australian basis, reference Kansas, is now at the lowest level since early April.  Australia is now probably quite a cheap source of wheat in global terms and so should find support reasonably quickly.
  • Corn futures finished just a touch lower on Friday.  The market remains concerned about the heavy flooding in Iowa, Minnesota and Wisconsin.  Fieldwork has advanced quickly in the remainder of the Midwest though, so that has maintained the pressure on pricing.  On Friday China slapped a 33.8% duty on imports of US dried distillers grains (a by-product of corn based ethanol production), citing anti-dumping practices.  The move comes after the US filed a complaint with the WTO over the subsidies China’s government pays to its corn, wheat and rice growers.
  • Soybean prices plunged over 2% on Friday.  While the investor long position in ‘beans has halved since its May peak, the funds still have plenty of room to sell.  Harvest delays have continued in saturated portions of the US upper Midwest.  Forecasters though expect drier conditions will prevail over the next ten days or so which will assist harvesting elsewhere.  Reports of big crop yields continue to roll in.  The market will also be nervous this week about the trade tensions that emerged on Friday.  China has imposed a hefty tax on imports of US dried distillers grains, which are used as a source of protein in livestock and poultry diets.  If more US DDGs remain at origin that may place some pressure on soymeal as it competes for a place in feed rations.  Canola futures followed the broad trend to close the day lower, but higher Canadian crush rates and a lower dollar helped to keep a floor in the market.

Cotton

US cotton futures closed sharply lower on Friday as the trade booked in some profits.  The December-March spread plunged 25 points to move the curve into a steeper carry.  We expected that prices at 71¢-plus levels would start to draw out some new sellers.  There were reports of hailstorms last week having stripped cotton in some Texan fields.  The market will be looking for some confirmation of damage in today’s US crop conditions report.  Friday’s positions report indicated that investors have made modest additions to their long positions on those weather worries.

Sugar

Sugar futures prices were little changed by day's end. The New York October-March spread fell back into carry.  The New York October contract, expiring Friday this week, saw its open interest fall sharply and will likely have done so again after Friday's trading.  That drop makes an orderly expiry more likely but there is still work to be done.  Friday’s positions report records the investor long position, depending on which measure you look at, as either very large or at record levels.  The positions can now linger for a long while as most of it will be in the March contract.  The long hiatus (about five months) means the extent of any disconnect between the physical and futures market will not have much impact until the New Year at the earliest.

Cattle

Australian spot cattle indicators were unchanged Friday.  Eastern Australia is looking at a drier (though not entirely dry) weather pattern over the next ten days or so, which may put a little pressure back into prices.  US live cattle futures had a volatile Friday – plunging and rebounding sharply – while cash trades remain very thin.  US markets today will be dominated reaction to Friday’s afternoon’s cattle-on-feed and cold storage reports.  Neither were particularly price-friendly.  US cattle placements and marketings in August were higher than analysts had anticipated, and beef in cold storage was up 1% on the previous year.  The mounting pressure on Australian beef prices will remain on the watchlist.

Dairy

NZX WMP futures prices were a shade lower on Friday in quiet trade.  The kerfuffle after last week’s GDT auction seems to have settled for now.  We continue to expect more evidence of lower milk production that should at least sustain, if not boost, dairy prices.    

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.research.commbank.com.au.

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

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