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Agri-commodities update: Cattle less bullish

Australian cattle prices continue to decline as some seasonal supply pressure is meeting less aggressive bids from processors.

Currencies

The US Dollar touched new highs on many of the agri-exporter currencies on Tuesday before later retreating.  The greenback remains at levels where it is influential for US$ commodity prices.  The Brazilian Real continues to be a secular exception to the greenbacks strength as it again rallied to year-plus highs.  The Australian Dollar continues to be more buoyant than most among the agri-majors.  The Aussie is up the best part of a half-cent to start today a little under 76½¢.

Grains & Oilseeds

  • Wheat futures prices were little changed on Tuesday.  The US winter wheat contracts made modest gains but remain near recent lows.  Investors might boost the market if they clear short positions again.  The price action of the past week will not, to the extent investor positions are momentum (rather than fundamentally) driven, be prompting that buy-back.  The US Dollar’s strength remains an issue.  The market might spend a week or two in the doldrums while it waits for evidence to accumulate that these price levels are low enough for the US to win export orders.  2017 crops issues might be the only thing that upsets that.  US hard red winter wheat country has little prospect of any rain in the next 7-10 days.  The region’s high temperatures of late have substantially widened the area where there is no sub-soil moisture.  High temperatures over the next few days will make that worse.  The catch-up task for rainfall is getting larger.  Weather forecasters now expect southern Russia and western Kazakhstan to get some over the weekend that might get the area off the watchlist.  France’s wheat regions got enough rain to ward of any issue emerging for a period but remains on the watchlist because soil moisture remains on the low side.
  • ASX East January wheat futures fell another dollar or so on Tuesday close at 234$.  Australian basis is little changed with modest overnight moves in futures and currency markets.  Weather forecasters expect mostly dry conditions in eastern Australia for the next week.  The projections do have notable exceptions here and there.  None of those events though seem to settle into a wetter pattern that would suggest new problems for crops.  Wetter areas in the south will get more time to dry but temperatures remain on the low side in some areas.
  • Corn futures edged a little higher Tuesday - largely due to gains made in the wheat market.  Investors seem to be comfortable with the amount of short positions they have bought back – hence the profit-taking action petering out.  The market is now hanging in limbo as it awaits some fresh fundamentals news to provide direction.  Forecasters say the US Midwest will see some rain today and tomorrow, but beyond that conditions are looking near ideal for corn harvesting.  Brazil will see regular rounds of showers over the next two weeks to erase any lingering pockets of dryness in Mato Grosso and surrounds.  We struggle to see corn prices sustaining material gains in the absence of South American weather worries – but of course there’s still plenty of time for those to evolve later in the season.
  • Oilseed prices finished little changed on Tuesday despite plenty of zig zagging throughout the day.  The mammoth US soybean harvest continues to progress favourably.  Production prospects have also brightened for South America with soil moisture improving greatly in the past fortnight.  The demand outlook continues to act as a counterweight though.  Yesterday the USDA announced yet another large Chinese purchase of US ‘beans.  And the Brazilian Real touching 15-month highs (which is supportive of US$ denominated soybean prices) will further fuel expectations for US export demand.  Canola futures largely followed the soybean market on Tuesday, but may retain a degree of independence if the Canadian harvest remains a source of anxiety.  The Prairies have taken a drier (though not totally dry) turn this week, but progress remains slow nonetheless.  Eastern Australia is looking at another round of showers and thunderstorms this weekend, but drier conditions in early November should keep threats to unharvested canola at bay.

Cotton

US cotton futures and spreads weakened a shade on Tuesday.  Having failed to find support at 69¢, the December now looks set to test the 68¢ level.  The news flow on Hurricane damage to cotton crops in the US Southeast has dried up for the time being, so the scramble for cotton appears to have waned.  We still expect to see some losses reported once local authorities have tallied the numbers.  But there are now ideas that near ideal conditions for filling, maturing and harvesting will boost production in the Southern Plains and help to offset crop issues in other areas.  

Sugar

Sugar futures gave up about half of Tuesday's gains with a sharp fall overnight.  The sugar rally continues to tire in light trading.  Last night's fall probably was not enough to create a downswing in momentum.  Sideways is still a slow burn problem for the sugar market but is not an immediate danger.

Cattle

Australian cattle price indicators were broadly weaker Tuesday, with the EYCI now about 8% lower than the August highs.  Reports suggest that the boost in spring supply, particularly the increased numbers suited to trade orders, is generally satisfying requirements ‑ at least for the time being.  We expect numbers will start to tighten up again once the initial rush is cleared.  Restocker demand for young cattle may even step up somewhat at slightly lower, but still strong, prices ‑ pastoralists have an abundance of feed and an appetite to rebuild.

Dairy

NZX WMP futures made sharp gains on contracts out to May next year. For reference, most WMP contracts remain 200-300$ off the highs set in September.  NZ’s northern dairy regions continue to see only modest rainfall.  Soil moisture profiles have stabilised to where they should not be a problem.  We will no longer being watching the region so closely.  Victorian and Tasmanian dairy regions in Australia though continue to suffer from extremely wet conditions that are bound to lower production somewhat.

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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