Sugar prices, already looking weak, had another stumble on Friday to look even shakier.
The US Dollar was weaker on Friday against most currencies. US Presidential politics tripped up the greenback. The FBI re-opening an investigation into Clinton’s emails favoured the Trump campaign. Seems the idea of “making America strong” again weakens the dollar. The Australian Dollar has had a modest quarter-cent gain in the move to starts today just under 76¢.
Grains & Oilseeds
- Global wheat futures prices were mixed on Friday, though Chicago and Kansas saw sharp falls. The positions report on Friday suggests investors added substantially to their already large short positions – a confirmation that the rally has faltered. Weather forecasters see little chance of rain in the dry parts of US hard red winter wheat country for another week. Weather models are suggesting a useful rain event for the region at the end of next week – forecasters though are wary. High temperatures in the region have slowed the game-clock. The temperatures have reduced soil moisture but they also mean the crop can use any moisture they do get. The prospective rainfall has seen prices ease. Argentina’s wheat regions will have dried down over the weekend so conditions are evolving in the right direction. We don’t quite have enough data yet from the weekend to scratch southern Russia and western Kazakhstan off the watchlist.
- ASX East January wheat futures were bumped up a dollars to close the week at 237$. Friday night’s action in futures markets means Australian basis is less competitive today, but not uncompetitive. Weather forecasters expect the weekend’s largely dry conditions in Australia to continue this week. Soil moisture is coming down slowly and conditions are evolving well for maturing, drying and harvesting.
- Corn futures eased modestly on Friday amid quiet trading. Forecasts for more good US harvest weather appear to have encouraged some profit taking ahead of the weekend. The weekly position report was little changed as of last Tuesday – perhaps a sign that investors remain unsure about the market’s direction. Investors are clearly less bearish about corn’s prospects, but at the same time appear reluctant to build up a large long position. Market chatter is focused on lack of available storage with the US harvest is now around two thirds complete. A lot of corn remains in the hands of sellers so if grain storage does become enough of a problem then that could push prices down for a time.
- Oilseed prices had an eventful Friday. Soybeans continued their roll from November into January. The two week rally in prices though showed some signs of tiring, as cash prices are now notably lagging the futures market. Prices faltered near the close thanks to aggressive investor profit taking. Investors still hold a sizeable long profile so the market will remain vulnerable to this kind of selling. The funds are well aware that US soybean supplies are very large and, for now, the South American crop has no major issues. Consequently the temptation to take profits on any rallies will be difficult to resist. Forecasters say harvest conditions across the US should remain largely favourable this week. Brazil’s soybean planting is a little over one third complete, but progress might be a little slower this week with more rain in the forecast. Canola futures closed at fresh four month highs on Friday. Like ‘beans, the market had taken a weaker tack by the day’s end but managed to defend the bulk of its gains. A weaker Canadian Loonie was helpful context, as were reports of more snow falling in Alberta and some showers in Saskatchewan. Harvesting in the Prairies remained at standstill last week and at this rate Canada’s canola output is unlikely to live up to current USDA expectations.
US cotton futures had another leg up on Friday. The December contract rallied sharply to close just shy of 71¢. The market is once again approaching levels that have seen it become vulnerable to some profit taking. Like wheat, the cotton market remains somewhat constrained by its need for a strong 2016/17 export program. Prices creeping too high can stymie that demand. Cotlook also cut their forecast for the 2016/17 global cotton deficit to 1.82mmt (previously 1.97mmt), citing higher production (largely out of India, Brazil and Australia) and slightly lower than expected consumption. That might also cause some jitters today - Friday’s position report showed that investors have continued to defend their large long position, but some selling may emerge if demand looks to be taking a weaker than expected tack.
Sugar futures prices fell sharply on Friday evening. The fall has seen prices drop out of the range traded since the mid-September step-up. Another, perhaps telling, sign of weakness in the sugar market. The positions report suggests investors had sold some of their long position as at last Tuesday. Investors have probably sold some since too. Nonetheless, investor’s long position is probably still huge. And, when the market is faltering, the position lacks a raison d’etre.
US live cattle futures stumbled at the close of the week. Trade in cash markets though was more active and boxed beef prices showed some additional improvement. Beef demand is expected to pick up leading into the holiday months and there is also optimism that kills will seasonally decline through November. For now though slaughter remains very high because strong margins are encouraging meatpackers to continue running at full steam. Last week US cattle slaughter jumped to 613k head, up nearly 11% on last year. We remain wary of ideas that the US cattle market can support a sustained price rally, but another week of consolidation would perhaps support the case for prices to have closed out the seasonal lows.
NZX WMP futures made hefty gains on Friday. WMP contracts out to mid-2017 are now only a little off their September highs. We don’t think there is anything sacrosanct about those highs - they are just where the market happened to be when there was a sluggish mid-September GDT auction. Another GDT auction looms on Tuesday to test the bullish mood in the futures. The mid-October auction set higher prices - but not as high as futures prices presaged. Certainly the news since then has been supportive of prices: analysts will have materially cut milk production estimates in NZ and Australia. Higher prices are on the cards. Victoria and Tasmania’s dairy regions were largely dry over the weekend which will have accelerated drying – perhaps to a point where much of the region will be normalising.
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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.