OPEC, against the odds, managed to agree to limit crude oil production.
The US Dollar and the other agri-exporter currencies were more notable for volatility than direction on Wednesday. The Canadian Dollar was a big exception as it gained the best part of two cents on the greenback. Canada’s economic fortunes depend on energy prices to significant degree. Crude oil prices jumped 5-6% last night – helpful in itself for the Loonie – but the reason for the higher oil prices is also significant. OPEC, an oil producers’ cartel, last night agreed to limit their production. Getting that group, with its disparate politics and internal disputes, to agree on anything is not easy so markets are impressed by their apparent urgency. Higher oil prices flow through to all of agriculture obviously. A sustained higher shift in the Loonie though is going to affect the Canada’s competitive position across a range of crops – wheat, canola and pulses. The Australian Dollar has, by contrast, had a quiet twenty-four hours. But the Aussie, reaching out towards 77¢ this morning, is pushing up towards the top of the range.
Grains & Oilseeds
- Most wheat futures were little changed on Wednesday. Minneapolis spring wheat futures were an exception as they made sharp gains. US exports of Hard Red Spring (HRS) wheat have been strong. Our estimates suggest they have been running 4-5% ahead of the USDA’s current forecast for about six weeks. The export strength comes at a time when the US HRS balance sheet suggest has only marginal comfort for this class of wheat – unlike its winter wheat counterparts. Northern winter crop planting is upon us. Both US and Black Sea winter wheat regions could do with some rain. Bother regions have time to get this rain but the existing moisture deficits need to be rectified for successful pre-winter establishment – so on to the watchlist they go.
- ASX East January wheat futures were marked 3$ higher on Wednesday to close at 233½$. Overnight action in currencies and US futures has marginally fattened Australian basis. No obvious direction for the market from there. And eastern Australian basis levels do not point in any particular direction. Weather forecasters continue to expect a drier turn in south-eastern grain regions but that weather forecast will need to be sustained and then realised. Some Western Australian regions are experiencing frost-level temperatures that might damage crops there.
- Corn futures finished modestly lower on Wednesday. The US reported a monster sale of 1.58mmt to Mexico (the fourth largest individual sale on record). In another time that might have drawn out more of a reaction, but US feed grain inventories are large and about to get even larger, so the market was unmoved. Forecasters say the eastern US Midwest will see some rain next week, but elsewhere conditions for maturation and harvesting should remain favourable enough. Brazil will see another rain event over weekend. That’s probably not enough to remove it from our watchlist just yet, but subsoil conditions in Brazil are certainly improving.
- Soybean futures spent much of Wednesday trading sideways, though ultimately finished the session a little lower. The market is anticipating expanded harvest activity in the US as conditions across the Midwest turn drier. A couple of sales of US soybeans though did lend the market some support. More flash sales are expected over the next few days too – China’s National Golden Week holiday approaching and so Chinese traders are becoming more active to shore up supplies. Canola prices continue to creep steadily lower. The Canadian Dollar soared Wednesday though and Ag Canada boosted its 2016 season crop forecast, so prices probably fared well considering. Forecasters say Canada’s Prairies and south-eastern Australia are still in need of drier conditions. While both countries are looking at big crops, excessively wet conditions will raise some doubts over quality.
US cotton futures experienced further falls on Wednesday. Another day of lower closes means that market momentum is beginning to point downward. Investors will soon start to see the exit light flash on their relatively large long position. Some fresh fundamental news is probably needed to mollify those cotton bulls. Near-term weather forecasts though look relatively non-threatening. Limited rainfall in the key growing regions of the US, China and India should promote favourable harvest conditions. Soggy planting conditions in Australia are expected too slowly improve, though cooler temperatures are extending drying times.
Sugar futures prices rallied sharply again on Wednesday. While neither of the New York October or March contracts made new highs that is a something of a technicality – the action is bullish. UNICA, the southern Brazil millers association, said yesterday they’d produce about 35mmt of sugar this season – the top end of the range. If that doesn’t sound especially bullish to you then we are of the same mind. The market, in a revealing observation on its mood, chose instead to focus on the other comments about lower cane productivity and an “early” season end. While 2016 season prices made larger gains, prices for the 2017 and 2018 seasons are hitting new highs. We think patience is likely to prove a virtue here on the subsequent season prices as they probably still have an upward calibration to make.
Australian spot cattle indicators saw some mixed results on Wednesday. The EYCI lifted again and is now threatening to test recent record highs (725¾¢/kg cwt). Restockers remain firmly in the driving seat. Demand is particularly strong from NSW pastoralists at present – the average price for EYCI eligible vealers at Singleton, for example, was well above 800¢/kg cwt this week. Cow prices however came back a few cents, with reports that Victorian processors were often unprepared to bid prices higher. There is a glaring divergence between Australian cow prices and US imported lean beef prices. Overnight action in markets is an additional negative – US domestic 90CL prices have moved a few cents lower, while the Aussie Dollar has made modest gains. Australian beef will, notionally, look even less competitive today.
NZX WMP futures continue to fall, sharply in most cases, on Wednesday. Futures prices are nearing or at levels set in the last GDT auction so we expect the falls to abate. Nonetheless, the world is never that neat that futures will come to a halt at equivalent auction levels.
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