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Agri-Commodities Update: Whack from the greenback

The US Dollar’s recent rallied continued Tuesday, weighing on US$ prices.

Currencies

The US Dollar rallied against most of the agri-exporter currencies on Tuesday.  The greenback made, or neared, near-term highs in doing so.  The Australian Dollar followed that pattern as it lost a half-cent over the day.  The Aussie starts trading today a little below 75¼¢. 

Grains & Oilseeds

  • US wheat futures prices continued to tumble on Tuesday.  US futures all set new season lows on the day.  Kansas December is now below four dollars.  A stronger US Dollar did the market no favours, precipitating the day’s fall.  Time spreads continue to steepen too.  The Kansas September-December spread continues to decline into uncharted territory.  US markets still look decidedly wobbly.
  • ASX East January wheat futures set new season lows on Tuesday but managed to claw back a dollar in the evening session to close at 230$.  Overnight trading in wheat and currencies suggests provides a mix of influences.  The net probably still requires somewhat lower prices but Australian prices are not a long way from being competitive.
  • Corn futures suffered further losses Tuesday amid sustained selling by the trade.  Prices are now at seven year lows.  Plunging wheat prices and a looming bumper US corn harvest are giving the market a panicky feel. 
  • Soybean prices lurched lower on Tuesday as investors continue to liquidate their positions ahead of a large US harvest.  Not even reports of a fresh sale of US ‘beans could put a floor in the market.  On a global level, soybean stocks do not look especially burdensome - strong feed demand is likely to keep any excess supply only modest in the 2016 season.  Investors though had bet heavily on the prospect of a much tighter global balance sheet.  Investors’ rationale for such a large position has now dissolved because the US harvest set to restore a reasonable supply buffer.  The remedy for that, of course, is to sell and we are not yet convinced that investors have done enough.  As of last Tuesday the market was still sitting on a sizeable long position.  Canola futures followed the soybean market lower on Tuesday, despite the EU trimming its forecast for 2016 rapeseed production by more than 5%.

Cotton

US cotton futures continued to move lower Tuesday.  Investors, with several sharp bursts of buying and selling, kept most of the action concentrated at the end of the day.  ICE December fell sharply following a large sell order only to rebound on technical buying.  The market has lost its conviction that the Chinese stockpile situation might be resolved in 2016, but the promise of much tighter supplies (and so higher imports) in the not too distant future means that prices are, in our view, likely to find support around the 65¢ level. 

Sugar

Sugar futures continued to trade dully to leave prices and spreads little changed.  UNICA published south Brazil production data for the first half of August.  The season continues to see more cane allocated to sugar rather than ethanol.  An “auto-pilot” projection of sugar production from here is about 35mmt.  UNICA, among others, are doubtful that will be the case as the sugar yield from the cane is expected to lag seasonal norms.  Sugar yields are set to peak during September and October so this forecast is about to be tested.

Dairy

NZX WMP futures were mostly unchanged Tuesday.  The market though has opened this morning with an early price lift.

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.research.commbank.com.au.

This report was originally published, approved and distributed by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945.

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