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Agri-commodities update: Black Friday confirms US is on sale

Strong US export sales reported Friday continue to suggest the price of US agri-commodities is about right.

Currencies

The US Dollar retreated against the other agri-exporter currencies on Friday.  The greenback remains on the high side but the retreat means no new pressure for US$ commodity prices.  The Australian Dollar conformed to that broad pattern. The Aussie starts the week at about 74½¢. 

Grains & Oilseeds

  • Wheat futures prices had a mixed Friday.  Paris and Minneapolis gained a little while Kansas and Chicago saw sharpish falls.  Chicago remains the weaker among the two as prices there are closer to season lows.  The USDA’s export sales report shows one reason for the divergence.  Hard Red Winter (Kansas) wheat exports continue set a good pace that means the required clearance is happening.  Soft Red Winter (Chicago) wheat exports by contrast still seem to be weakening.  Weather forecasters have not changed their outlook all that much for the US hard red winter wheat region.  Temperatures are now low enough that much of the crop is dormant or on the way there.  The weekend had not, so far, produced any precipitation.  The market will continue to monitor prospective protective snowfalls in early December.
  • ASX East January wheat futures closed last week at 227$.  Friday night’s moves in the Aussie and US futures have fattened Australia’s basis but not yet to the extent of making Australian wheat uncompetitive.
  • Corn futures closed a touch weaker in shortened Friday trading.  The USDA reported another excellent week for US corn sales, but that was not enough to support prices.  The outlook for South American corn remains largely favourable.  Brazil saw widespread rain from Mato Grosso to Minas Gerais last week, so the crop is poised for an excellent season.
  • Oilseed markets continued to draw support from the higher US 2017 advanced biofuel targets.  Soybeans got an additional boost from a big week of US sales – largely destined for China – which took prices to four month highs.   Argentina’s soybean planting was reported to be around 34% complete at the end of last week.  Progress is now being made more quickly with the drier turn in the weather.  Once planting is completed though those crops will be in need of a top-up in soil moisture.  The area from Buenos Aires down to southern Cordoba has started to look a little dry of late.  Some generalised rain did occur over the weekend and forecasters also have their eye on two important rain events in December which, if realised, would bring timely relief to crops.  Investors and traders will keep a close eye on weather patterns both this week and next. 

Cotton

US cotton futures had a choppy end to the week amid shortened trading hours.  There was plenty of information for the market to absorb when it returned from the Thanksgiving holiday.  Firstly, the US reported a huge week of cotton export sales.  India’s current liquidity issues are likely providing some boost to US sales.  Reports last week suggested that Indian exports had been delayed as the cotton cash trade ground to a halt.  Secondly, China announced it will resume reserve cotton sales in March 2017.  State selling is a double edge sword for the global market – while prices will see long run benefits from fewer Chinese reserves, in the short term their disposal delays additional import needs.  Finally, Cotlook cut its forecast for the global cotton deficit (from 1.82mmt to 1.58mmt), citing higher US production and reduced demand from Vietnam.

Sugar

Sugar futures prices for the current season bounced sharply on Friday in thin trading.  The rises in 2017 season prices were modest; season 2018 was unchanged.  Weather forecasters continue to expect wetter conditions in Brazil’s southern cane region but the weekend has so far seen only modest rainfall.  The market will assess any problems for late season crushing as data for the full weekend accumulate.  Australia’s cane regions had a mix of weather over the weekend.  Northern and central cane regions continued to be largely dry while the southern area saw some heavy rain.  Forecasters suggest little extra rain from here this week so any issues will subside reasonably quickly.

Cattle

US live cattle futures were higher on Friday.  The day’s early action had the clear signature of investors (prices soared on a short, sharp burst of buying at the open), but the consolidation of those gains suggests that the trade is also becoming more active in their purchases.   With Thanksgiving now over the market is anticipating a lift in demand for beef, which helped prices in the wholesale market move higher on Friday too.  The comparatively larger rally in cattle prices though has caused US packer margins decline sharply.  Margins were especially high though so they remain solidly in the black.

Dairy

NZX futures were a shade higher on Friday.  The market continues to consolidate around levels set at the last GDT auction.  With the next GDT auction still eight days away, trading might be quiet until then.

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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