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Agri-commodities update: Sugar rides the Yungas Road

Sugar prices continue to weaken - a very precarious path to take when that might easily provoke investor into selling their huge long position. 

Currencies

The US Dollar weakened against the other agri-exporter currencies on Wednesday.  The US Federal Reserve Bank (Fed) did not raise US interest rates – few though thought they would.  The greenback’s modest fall came about because of nuances in what the Fed said about their future plans.  Fed-watchers were a little surprised because the Fed sounded in no hurry to raise interest rates in the near future.  The Reserve Bank of Australia, traders concluded yesterday, would also be in no hurry cut rates.  The Australian Dollar was plenty volatile with both events but starts today little changed just under 75¢.

Grains & Oilseeds

  • US wheat futures were little changed on Wednesday.  Paris prices though were down sharply again.  EU wheat prices have now lost most of the very large gains made late last week.  EU wheat crops will record lower quantities and qualities than many expected.  The US and the Black Sea exporters though will have plenty available for export so a modest reduction in EU availability is only worth so much.  And it very unlikely to be worth the 15-20US$ premium to Kansas seen in recent days.
  • ASX East wheat futures were marked sharply higher on Wednesday.  ASX East January was marked at 250$/t – the highest in a fortnight.  We are a little sceptical of the rise.  There were no trades.  And most traders are not at their desks but meeting up in Melbourne.
  • Corn futures closed higher in a day of choppy trading.  There are some growing concerns for corn crops in France and the Black Sea as conditions are trending too dry.  US weather though is expected to remain favourable across the Midwest for at least another week and will keep soil moisture high.  Forecasters say conditions will turn drier in the second week of August but, provided the dry spell does not linger more than a week, the impact on overall crop conditions probably won’t be large.  The forecast sounds all too familiar.  So, while the risk of August dryness has provided some support to prices, the market appears more wary this time around of pricing too much weather premium in too early.  The US reported a large sale of corn on Wednesday which provided some support on the demand side.  Further gains though were capped though by weakness in the ethanol market.  The US reported weaker production of the corn-based biofuel last week, but ethanol prices still slid in sympathy with plunging oil futures.
  • Oilseed prices lifted again on Wednesday.  The rise though still looks to us like more of a technical correction on soybeans having fallen too hard too fast, rather than fundamental investors piling back in to the market.  Weather conditions will remain helpful in the US Midwest for the next week or so.  The Delta and Southeast are also forecast to receive regular rounds of rain in that period.  There are some nascent worries of course about dryness developing in August but, with good soil moisture conditions still in place, there’s a strong sense of déjà vu in the two week forecast.  A sharp rally in the Brazilian Real was broadly supportive, as was the USDA’s report of a sizeable sale of US ‘beans to China.  Another round of Chinese soybean reserve auctions though looms tomorrow.

Cotton

US cotton futures closed a shade weaker Wednesday despite an early lift in prices.  The market looks like it was hit by a large sell order right at the close, but there were enough buyers on the other side of that to keep the damage relatively contained.  Forecasters say Gujarat, India’s top cotton producing region, will experience a significant step up in rainfall over the next fortnight.  The rainfall will improve marginal soil moisture conditions in the region.  The US Southern Plains and West Texas are expected to receive increased rainfall over the next two days and a brief respite from high temperatures.  A drier and warmer bias though is expected to return in the first week of August.  

Sugar

Sugar futures prices fell sharply on Wednesday.  New York October’s official close at 19.10¢ gives at least technical support to thinking that the market is in a downswing.  Momentum investors still have very large long positions that they will not hold onto if the market is, even modestly, declining.  The market remains at risk of an abrupt sell-off.  Spread discounts deepened too:  the October-March spread closed a whisker above the lowest since early June.  The market had then taken fright at the continued wet weather in southern Brazil's cane regions.  These worries seem distant now after what is approaching a month and half of very good harvesting weather in the region.

Dairy

NZX WMP futures were sharply higher Wednesday.  Of note was the large jump in nearby prices – NZX September lifted 4%.  For the past few weeks it has really only been the late-2016 and 2017 contracts that have seen solid price improvements.

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