One of the snippets of news released while benchmark US
markets were closed on Monday for the Martin Luther King holiday was that China
is to ditch its stockpiling programme for cotton
Instead of helping growers of the two crops by supporting
crop values, offering guaranteed prices, China will switch to direct subsidies
For cotton, that means the end of a pricing scheme which has
supported not just Chinese prices but world ones, with the gap between domestic
and global values so large that the country's consumers have turned to
importing the fibre or, for clothes makers, often buying in yarn.
Does that mean an end to the rally which saw New York cotton
for March touch a for-month high, of 87.14 cents a pound, in the last session?
In early deals, markets took the news in their stride, with
a lack of detail over the policy change, unveiled on Sunday, offering scope for
One is that subsidised farmers will grow less cotton,
increasing China's import needs – although the huge inventories the country has
already built up through its stockpiling policy will still need to be run through
at some point.
Another twist is that China's government will retain some
The government said it would "gradually build a system
of target prices for agricultural products".
This means that "when the market price is high, low income
consumers will be subsidised, while when the market price is lower than the
target price, producers will be subsidised the difference, therefore
guaranteeing farmers' income".
Whatever, the news was not enough to make a large dent, for
now, in cotton futures, which eased 0.5% to 86.36 cents a pound in New York for
March delivery, as of 09:30 UK time (04:30 New York time, 03:30 Chicago time).
Separately, trade data showed China's cotton imports rising
14.4% last month to 608,606 tonnes, contrary to the 19.2% drop to 4.15m tonnes
in buy-ins overall in 2013.
And it helped that cotton for May proved relatively resolute
on China's Zhengzhou exchange, falling only 0.2% to 19.790 yuan a tonne, after
an even smaller loss in the last session.
Not that all observers are bullish.
Luke Mathews at Commonwealth Bank of Australia said that "with
global supplies at an all-time record high, and uncertainty continuing over the
future of China's cotton reserves, we question how long these strong prices
US broker Doane stressed the importance of focusing on
cotton grades, rather than supplies in total.
"Old crop cotton futures caught fire last week on more
evidence of growing shortages of quality cotton despite burdensome global
stocks of cotton overall."
Chinese government stockpiling has been less of an influence
on soybean markets, accounting for a
relatively small portion of world supplies (unlike for cotton, of which China has
more than half world inventories).
That said, the country's imports are a huge source of
influence for Chicago prices, China being the top soybean buyer, and the US,
until recently, the top exporter (now second place behind Brazil).
Chinese trade data showed imports of soybeans up 26% at 7.40m
tonnes last month, again stronger than the 8.6% rise seen in 2013 as a whole,
to 63.4m tonnes.
Imports from the US were up 24% last month to 5.94m tonnes,
bucking a 14.4% slide over 2013 to 22.2m tonnes.
But any positive influence from the data was diluted by an
improved weather situation in Argentina, where dryness has posed a threat to
Over the weekend, "showers were noted in northern Chaco,
Santiago del Estero, northern Cordoba, northern and central Buenos Aires,
northern and eastern Santa Fe, and Entre Rios," MDA said.
"Amounts were 0.25 to 1.0 inches locally up to 2.4 inches,
with 45% coverage of the corn/soybeans."
And looking ahead, "showers and cooler temperatures in
Buenos Aires will improve conditions for corn and soybeans", the US-based weather
'Some dryness to
Strong South American crops are seen potentially spurring a
wave of cancellations of orders of US supplies.
Soybeans for March eased 0.3% in Chicago to $13.12 a bushel,
even though there was some hint of deterioration in Brazilian conditions.
"Some dryness is likely to linger across Sao Paulo while
moderate showers in north western areas will increase early season harvest
delays," MDA said.
Nor did the Argentine weather outlook help corn, which eased
0.1% to $4.23 ½ a bushel for March delivery.
China's corn imports, while up 167% year on year in
December, at 637,045 tonnes, were down 19% from the November total, a
reflection of the rejections by Beijing of some cargoes of US grain over
contamination with an unapproved GMO corn variety.
China was a bigger help to wheat prices, which edged 0.1% higher to $5.64 a bushel in Chicago,
amid talk that the country is seeking imports of the grain, to exploit values
amongst their lowest since summer 2010.
Also tendering is Algeria's state grain agency, OAIC, and
Iraq's state grain board.
"Market commentators are suggesting that US wheat futures
are oversold and that the raft of physical trade should lift prices," CBA's
Luke Mathews noted.
Phillip Futures said that, given competition by the likes of
Australia and Canada with the US for export business, "even if we are seeing a
lot of activity going on in the export market, the wheat market is still
On a more upbeat note, Doane said that "the short-term
downtrend for wheat ended with release Thursday of a new drought outlook map"
from official US meteorologists, showing drought conditions likely to "persist or
worsen" over much of the US central and southern Plains.
Back among softs, Tuesday also brought the first chance of
New York-traded cocoa to react to strong Asian grind data out yesterday, showing
a 10% rise to 155,237 tonnes in volumes.
The data contrast with a 9% drop in Malaysian volumes, in
data released last week, which appear a signal of that country's wane as a
regional power rather than indicating actual demand softness.
Furthermore, in Ivory Coast, the top cocoa-producing
country, "three main cocoa growing regions were experiencing hot and dry
weather conditions, sparking concerns regarding the mid-crop in April to
September," Phillip Futures said.
"High temperatures and lack of rain would cause the death of
flowers that emerge on the cocoa crop," the broker said, adding that it was "bullish
on the cocoa market".
New York cocoa for March stood 0.3% higher at $2,708 a