Corn, and so wheat, prices fell Monday as fears of soggy fields fade in the grain trade.
The US Dollar was either weakened or unchanged against the other agri-exporter currencies. Only the Canadian Dollar among the group remains near lows on the greenback – important for canola pricing. The Australian dollar zigged and to open today a little higher at just over 76¼¢.
Grains & Oilseeds
- Global wheat futures prices fell sharply on Monday. Chicago December is within 10¢ of recent lows, while Kansas December has a 20¢ cushion. Corn prices took the lead as they fell by even more. Wheat’s fortunes are more entangled than usual with corn because more wheat needs to become feed given heavy supplies.
- ASX East January wheat futures gained some support Monday to close at almost 233$. Australian basis was quite cheap ahead of trading yesterday and that helped prices. Overnight action in currencies and US futures now makes that more ambiguous. Australia’s eastern grain regions are still wet. And those regions are likely to the stay that way if weather forecasters’ projections are correct. The trade’s worries about grain quality will be sustained by this pattern and support milling grade prices.
- Corn futures came under heavy selling pressure on Monday. Forecasters expect a drier turn in the US Midwest so worries about harvest delays and quality are fading. The US corn harvest is currently around 15% complete – a little behind the average pace, but not far enough for it to be an “issue”. Fieldwork is expected to accelerate more rapidly this week too. Meteorologists say rain seen in central Brazil over the weekend will be followed up by more this coming weekend. Most crop regions will see an overall improvement in soil moisture as a result.
- Oilseed futures were mixed Monday – soybeans eased modestly, while canola managed to hold relatively firm. The US soybean harvest is currently around 10% complete. That is a little behind the average pace, but more favourable weather this week should promote some catch-up. Apart from the occasional scattered shower forecasters still don’t see much rain of significance on the horizon for Argentina. The Argentine soybean planting window is only just beginning so there is still time for things to turn around, but the situation warrants close watching nonetheless. Canola benefited from further easing in the Canadian Dollar and palm oil futures pushing up near recent highs. Australia’s canola regions still have plenty of drying down to do ahead of the harvest period.
US cotton futures finished Monday little changed. The December-March spread though widened again, to settle at -46 points. The curve is now considerably steeper than it was a week ago – a drier forecast means the market is no longer too concerned about December availability. Indeed the US cotton harvest is now 10% complete so timing wise things look to be on track. Conditions have remained firm too, with 48% still good to excellent. That might prompt investors to dismantle some of the market’s weather premium over the next few days. Weather forecasters say Australian cotton planting will remain slow amid wet conditions.
Sugar futures prices rallied almost a half cent on Monday. Prices though remain about another half cent off recent highs. The New York October’s open interest is winding down in an orderly fashion to its Friday expiry. The contract has the sugar equivalent of about 3-3½Mmt in open interest. While that sounds on the large side we don’t think it is likely to cause a problem. The amount will dwindle in the next few days. Also, New York raws now routinely see large deliveries of a million tonnes or more. And, given a tightening trend in the supply-demand balance, we see no reason why that pattern will not persist or even potentially get larger. Looking further into the future, 2017 prices are either at new highs or not far off doing so, as are prices for the first half of the 2018 season. The process of calibrating to now higher 2016 prices continues in these subsequent seasons.
Australian spot cattle indicators moved lower on Monday. Trade and heavy steers were most affected. As would be expected, eastern states slaughter rates for last week were sharply (~30%) lower year-on-year. Female kills in Queensland have taken another material step down in the last couple of weeks too. Most selling centres reported higher numbers on Monday though to suggest prices for slaughter cattle will come under a bit more pressure this week. In a shock move, Indonesia (Australia’s largest cattle export market) abolished its quota system for cattle imports. The Indonesian government though is still insisting that importers commit to the country’s new cattle breeding program (importing 1 breeder for every 5 feeders) before they are allowed to proceed. So far three companies have reportedly agreed and been granted approvals. The Indonesian Feedlotter Association has dubbed the rule “uneconomical” as the country does not currently have the capacity to support extensive breeding programs.
NZX futures prices fell on Monday and have opened sharply weaker this morning. The fall can be seen as the market getting back to calibrating to last week’s GDT auction benchmark. Fonterra said this morning that its August milk solids collections in NZ fell a hefty five percent from the same month last year. DCANZ, the industry association, reported a smaller three percent fall. The numbers are both going in the right direction though numbers like Fonterra’s will be needed to get the market to become more optimistic than they already are.
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