Just as you can only kill a crop once, as bears often remind the market at time of crop threats, bulls might counter that you can only kill export demand once too.
Sure, the outlook for US ag exports to China looks dismal, with a report that China’s state-run agricultural firms have now stopped buying US farm goods - after US President Donald Trump’s threat last week of raised tariffs on an extra $300bn in imports from China.
However, when US ag shipments to the US have hardly been substantial anyway since the two countries’ trade war kicked off a year ago…
“China has essentially suspended purchases of ag products for the US, which isn’t a huge change, in terms of soybeans, corn and wheat, from where we were at on Friday,” said Benson Quinn Commodities.
As JP Morgan put it: “US agri exports are already largely locked out of China.”
“With already negligible flows of US agri products to state owned and very small purchases from private buyers in China at present, any potential retaliatory hike in China’s import tariffs for US products would have a minimal impact on US agri product export flows to China.”
Not that ag investors were exactly upbeat to start the week – especially in cotton, a big US export to China in normal times, which is also, as an industrial commodity, more exposed to the macromarket vortices which dragged the renmbini to an 11-year low against the dollar, and sent shares lower.
Wall Street’s S&P 500 index stood down 3.0% in late deals, after a 2.5% drop in London stocks and, overnight, a 2.9% tumble in Hong Kong shares.
New York cotton futures for December ended down 1.6% at 58.48 cents a pound, the weakest finish for a nearest-but-one contract since April 2016.
This after futures on China’s Zhengzhou exchange hit their lowest in more than 10 years.
Commerzbank said that on the Zhengzhou too, the price response is likely related to the escalation in the US-Chinese trade conflict as,” besides the US being a cotton exports to China, “China is a major supplier of cotton textiles to the US.
“These textiles could be affected by the new US punitive tariffs and as such would no longer be in demand.”
That said, production of textiles “could be further relocated to other Asian countries such as Vietnam or Bangladesh, increasing their demand for US cotton.
“The negative response of the cotton price therefore appears exaggerated to us,” the bank said.
Certainly, the December cotton contract ended well above a low of 57.26 cents a pound reached earlier.
And some other ags managed even more notable recoveries from early losses, meaning that the Bcom ag subindex, down 2.0% at one point, stood less than 0,1% lower in late trading.
Chicago corn futures for December, for instance, recovered from losses of 2.1% earlier to end at $4.14 ¾ a bushel, up 1.3% on the day, and just back above their 100-day moving average.
It helped that even in the best of times corn is not a big US export to China (although products such as distillers’ grains [DDGs] and ethanol are).
Still, weather played a role too in reviving prices.
‘Dryness is becoming more of an issue’
“Weather leans supportive [ for prices] as dry conditions continue over the late planted, perhaps shallow-rooted corn and soybean crops in eastern areas of the Midwest,” said Benson Quinn Commodities.
“Anecdotal reports indicate the negative effects of the dry conditions to this point.”
Joe Lardy at CHS Hedging said that “dry weather is expected to persist across most of the Corn Belt”.
Meanwhile, the official US Drought Monitor “shows pockets of drought expending in Kansas and on the Iowa/Illinois border”.
Tregg Cronin said that the “30-day, percent-of-normal precipitation maps from NOAA continue to show a large pocket in Iowa, Illinois, Indiana and Michigan which is running below 50% of normal.
“A sizable pocket in Iowa and Illinois is running below 25% of normal.
“Separately, dryness is becoming more of an issue across Kansas, Oklahoma and Texas with a large swath running 25-50% of normal over the last month.”
‘Difficult to get bearish’
The dryness “certainly has implications for fall crops”, Mr Cronin added.
But also, “the dryness will need to be monitored heading into September and hard red winter wheat sowing”.
Kansas City hard red winter wheat for September closed up 1.2% at $4.26 ¾ a bushel, also helped by the gains in corn, with which it has been closely tied in price terms, in a quest for feed demand.
Chicago soft red winter wheat, the world benchmark, closed up a more modest 0.7% at $4.94 ½ a bushel for September.
Minneapolis spring wheat gained 0.4% to $5.24 ½ a bushel for September, although this was in the face of the prospect of US harvest, and pressure thereof.
Still, it is “difficult to get bearish Minneapolis wheat when end users are buying and funds are carrying record short positions,” Mr Cronin said.
Soybean futures, more sensitive to US-China trade, managed only marginal gains, of 0.1% to $8.68 ¾ a bushel.
Still, that represented some recovery after a 1.7% fall earlier, and was helped by, besides the Midwest weather worries, some decent US export data for last week, of 1.03m tonnes.
That was in the top end of the range of forecasts of 600,000-1.10m tonnes.
(Wheat exports, at 395,136 tonnes, were towards the lower end of forecasts, and corn at 631,289 tonnes, around the middle.)
Back in New York, coffee and sugar futures dropped, weakened by a 1.8% plunge in the Brazilian real, which sank on a broader aversion to emerging market currencies triggered by the revived US-China tensions.
A weaker real cuts the value, in dollar terms, of assets over which Brazil is a big influence.
Arabica coffee for September fell by 1.5% to 99.15 cents a pound,
Raw sugar for October settled 1.7% lower at 11.82 cents a pound,