Trump trumps agriculture markets, and locally the rand remains supportive

fnb agriculture commodities
  • International: Grain and oilseed markets on the international markets continued to be pressured by the ongoing US-China trade spat with President Trump indicating late last week that he would impose a temporary 10% tariff on the remaining US$300 billion Chinese imports. Commodities also saw losses with crude oil futures falling 8% last Friday. Meanwhile, the US Federal Reserve Bank for the first time since 2008 cut the US interest rate by 25 basis points to 2.25% and indicated potential cuts in future meetings.
  • In the grain markets, US maize futures closed yesterday mostly softer across the board with the nearby Sep-19 contract easing 2.8% week-on-week (w/w) at US$159.65/ ton. Maize for Dec-19 delivery fell 2.9% w/w at US$163.35/ ton. The yearly trend however still shows some resilience with the average US No.2 Yellow maize up 9.3% y/y at US$180.20/t.
  • While US wheat futures turned higher at the beginning of this week, the weekly trend was mostly downwards across the all contracts. The Dec-19 SRW and HRW wheat futures prices fell by 2.7% and 2.4% respectively w/w to close yesterday at US$181.73/t and US$162.85/t. The yearly trend in average weekly wheat prices remains downwards as reflected in figure A. US all wheat exports fell 4.5% w/w but still 21% higher y/y at 395,136 tons.
  • In the soybean market, the US-China trade threats weighed heavily on prices with the Chinese reportedly hesitant to commit to new purchases as the country mulls the retaliatory tariffs of US goods. Soybean for Nov-19 and Jan-20 futures fell by 4% and 3.9% respectively w/w at US$314.53/t and US$319.16/t.
  • South African market: Maize futures were up on the week despite weakness on the international market. The strength in the maize market was underpinned by the renewed rand weakness which flirted with the R15/US$ level. The nearby Sep-19 and Dec-19 maize futures gained 0.1% and 0.4% w/w at R2,920/t and R3,009/t.
  • Wheat futures however ended mixed with the nearby Sep-19 easing by 1.2% w/w at R4,484/t as production conditions continued to improve in the critical production areas of the country, the Western Cape. The farthest contracts were however lifted by the weaker rand with the Dec-19 and Mar-20 futures gaining 0.9% and 0.7% respectively w/w at R4,489/t and R4,579/t.
  • The oilseed market posted good gains despite losses on the international market due to the increased support from the weaker rand exchange rate and the tightening supply outlook. Sunflower was the biggest weekly gainer, finishing up 1.5% and 1.2% respectively for the nearby Sep-19 and Dec-19 at R5,256/t and R5,412/t. Remember the 2018/19 sunflower planted area was cut by 14% y/y and the July CEC harvest estimate indicated a 24% y/y decrease in production.
  • Soybeans saw marginal gains of 0.7% and 0.6% w/w for the Sep-19 and Dec-19 contracts settling at R5,482/t and R5,575/t. While both the planted soybean area and harvest estimates were slashed by 7% and 24% y/y respectively at 730,500 ha and 1.17 million tons, production will still be third record in three consecutive years.
  • Outlook: The US-China trade spat will continue to underpin the direction of grain and oilseed prices on the international markets. Volatility in both international agriculture commodity and currency markets will have a mixed impact on local markets with further currency weakness lifting prices across the board. Decreased demand due to tariff increases both ways will hurt prices, limiting further upside for the local market. Weather will remain a critical factor for the wheat market as better conditions boost growth prospects.
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