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Outside factors weigh on markets

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With last week’s USDA report not bringing a lot of change to the table other factors are starting to influence and define the grain market in the short term. The Australian dollar has grown legs and is trading in the .75c to .76.5 US cent range. If we go back to the 1st of February the Australian dollar was trading at 0.7023 US cents. While the long term trend had been trending down this sudden surge caught most pundits off guard and has had a negative effect on current Australian grain values.

Weather patterns in the Northern hemisphere could be the next substantial driver of grain markets. There have been unconfirmed reports of below zero temperatures throughout the Kansas Plains growing belt and surrounding states. With grain in its early dormancy stage it is very susceptible to a late freeze. Similar scenarios throughout the Balkan states and the Black Sea could result in a production down grade. Expect choppy trade while these factors are being figured into the market.

Local export and domestic values have not been supported in the previous week. Growers holding grain on farm are having issues getting sales away mainly due to full capacity at local feed and packing houses. With patchy storms and rain forecast over the Easter period Lupin prices could come under pressure as well. The global balance sheet has been to the higher side for a long time and getting FOB sales away for Exporters has been extremely difficult with cheap grain being offered up from other origins and ocean freight being at an all-time low, causing Australia to loose its export advantage into Asia.

Expect trade to be quieter over the upcoming Easter period. If there are any price spikes over the short term look to price into these windows as buyer appetite may be limited. Finally all the best to an enjoyable Easter break and please be safe on the roads.

Chad Jefferis

Weekly Report 12/2/16

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WHEAT

The grain market was quiet on Friday, with the US market slowing down for the Presidents Day Holiday weekend.

CBOT March 16 futures finished the week lower at 457.2US¢/bu down 15.4 US¢/bu for the week.

Chart 160212 WR1

This week saw the release of a very bearish USDA report on Tuesday evening our time. The USDA added 6.8 million tonnes to global wheat ending stocks to a record 238.9 million tonnes. The increase in stocks mainly came from reduced demand from India and China. Wheat usage in China is estimated to be 4.7 million tonnes lower than January’s report as the governments internal economic food policies favour other grains. Global production was revised higher in Argentina (+0.5 million tonnes) and Ukraine (+0.3 million tonnes). Australian wheat remained unchanged in the report at 26 million tonnes – way too high!

Egypt tendered for wheat on Monday and received no offers to do uncertainty about quality restrictions. Egypt in an attempt to clear that up Egypt’s Supply Ministry and GASC have both confirmed that they will accept shipments with up to 0.05% of ergot, and reissued a tender and purchased one cargo of Romanian wheat at US$190.88/t (Cost and freight). It is reported that Bunge has launched legal proceedings to challenge the decision made by Egypt to reject the French Cargo.

India is predicted to harvest its smallest wheat crop in six years after two successive years of below-average monsoon rainfall. The Indian government estimate that Indian wheat production is at 93.8Mt. This figure is down from 95.9Mt last season (USDA) and below government targets of 94.8Mt. This potentially opens the door for wheat imports from Australia.

Attaché estimate, Canadian wheat plantings will fall to a 5 year low of 9.26 million hectares in 2016. This estimate is below the initial estimate from the International Grains Council which sits at 9.5 million hectares.

Russian Ukraine wheat crop at risk. Recent mild temperatures and rainfall has reduced snow cover across central and southern Russia and eastern Ukraine. With some regions of Ukraine are seeing problems of freezing with almost a third of the crops at risk. A close eye will be kept on what the weather does now as we enter that final period of winter as there are a couple of scenarios that could play out and result in elevated levels of winter kill this year.

Chart 160212 WR2

Chart 160212 WR3

To read the full report click the below link

Weekly Report 16_02_12

Weekly Report 5/2/16

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CORN/BARLEY

March 16 CBOT corn futures closed higher at US$3.68 per bushel up 3.0 Usc/bu for the week.

Chart 160205 WR

Brazil’s corn forecast was increased by 1Mt to 83.3Mt in January by CONAB. Exports of corn were also revised up and are expected to reach 29Mt, with high demand due to weak local currency. The lower Brazilian Real supporting local farmers to sell to the export market not the domestic end users.

Informa has raised the Argentine corn crop forecast to 26 million tonnes up 4 million tonnes from their previous estimate of 22 million tonnes.

South African grain association – Grain SA has lowered their initial estimate of corn imports from 5 million tonnes to 3.8 million tonnes.

Barley prices are also lower over the week against reflecting a lack of demand and the firmer AUD.

AUSTRALIAN DOLLAR

The Aussie traded at the 72¢ this week for the first time since early January.

The Reserve Bank has left interest rates unchanged at their February 2016 meeting.

WEATHER

BOM forecasts rainfall is more likely to be above average across much of the southern half of Australia with the strongest probabilities in the southeast over the next 3 months.

To read the full report click the below link.

Weekly Report 16_02_05

Weekly Report 15/1/16

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WHEAT

Agricultural markets had a rough week as the market reacted to the volatility in the Chinese economy. China is a major importer on the global market, so any reduction in the Chinese economy raises concern on future demand.

CBOT March 16 futures finished the week slightly lower at 468.4Usc/bu down 0.8 USc/bu for the week.

AUSTRALIAN DOLLAR

The Aussie dollar finished the week at the 70c mark. China’ growth prospects appear sluggish and if their economy continues to slow we can expect our A$ to come under pressure too.

To read the full reports click the link below.

Weekly Report 16_01_18

Currency plays on the market

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CBOT March 16 futures finished the week at 478.60 Usc/bu. Down 8.8 USc/bu week on week.

This week the market continued to see consolidation and a bit of short covering, but with no real news wheat continued to push lower for the week. One big factor affecting the trade at the moment is the swaying in the currency market. A weaker Chinese economy and further weakness in oil and base metal pricing is lowering confidence for world economic growth. The US dollar strengthening over 2.6% over the last month which has failed to support wheat pricing.

The US winter wheat crop continues to improve and is now rated at 55% good to excellent up 2% from last week. US winter wheat is at 93% emerged vs 90% a week ago as the crop moves closer to dormancy.

Winter crops in the Western Europe are in good condition as they head into winter. The French winter wheat is currently rated 98% good to excellent vs 93% last year. French winter wheat plantings for harvest 2016 are at the highest levels in 80years according to the French Ministry. The total area of winter wheat planted in France for 2016/17 is estimated at 5.22million ha, 500,000ha up on the year before.

Ukraine has also benefited from recent milder weather, but still nearly 36% of winter crops were rated in poor condition. This is the highest percentage in recent years, last year 18% was classed as poor.

Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) cut its wheat production forecasts for 2015/16 by over 5% to 23.96 million mt down 1.3 million mt. CBH have also revised the WA grain estimate for this harvest to 12.5 million mt – down from their October estimate of 13 million mt. WA wheat production revised down 14% from the official Australian Government estimate at 7.5 million mt.

AUD Update

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AUD back at 90 cents US. 

The AUD has dropped nearly 4 US cents in the past 10 days to 6 month lows falling to just above 90 US cents predominantly on the back of a strengthening USD with recent US housing & labour figures indicating a healthier US economy and economic outlook, as well as softer Chinese data and iron ore prices.

The AUD also weakened over the weekend on news that Chinese industrial production slowed to its lowest level since the GFC coming in at 6.9% yoy well below market expectations of 8.8% yoy.

The USD (Greenback) has strengthened against most currencies in the past few trading sessions on the expectation the US Fed Reserve will start to tighten monetary policy and raise interest rates sooner than initially expected.

For more details see attached article – AUD article 160914

Sources – ABARES & CBA.

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