“China coronavirus, killing six people with isolated cases in Vietnam, South Korea and Japan, is pressuring global equity/commodity markets,” said Richard Feltes at broker RJ O’Brien.
These included ags – although some contracts were affected much more than others.
The outbreak, which has left nearly 300 Chinese infected, was certainly a key investment theme for the day.
Benson Quinn Commodities noted that “fears of spread of new coronavirus that can spread from human to human has global markets in risk-off mode as the virus brings back memories of the Sars outbreak 17 years ago.
“Chinese new year this weekend will ramp up travel and raises concern that virus will travel further.
“The US is among many countries screening inbound flights from China.”
Brent crude stood down 0.8% in late deals at $64.67 a barrel, while London stocks closed 0.5% lower, although Wall Street shares were down a more modest 0.1%.
Among ags, it was those exposed notably to Chinese demand – cotton and soybeans – which fared particularly badly.
Chicago soybeans for March stood 1.4% lower at $9.17 a bushel, dropping back below 50-day, 100-day and 200-day moving averages, while New York cotton for March tumbled 2.2% to 69.68 cents a pound.
These ags were little helped either by a dearth of evidence of actual Chinese buying, after the splurge of rumours around on Friday of interest in US exports, following the signing by the two countries of a phase one trade deal.
‘Weather is favourable’
“No daily reporting today is bearish for a market that needs new demand,” said Benson Qunn Commodities, referring the failure by the US Department of Agriculture to announce a large order, as many investors had expected.
Furthermore, on the negative side for soy prices, “South American weather is favourable for Brazil and Argentine soybean and corn production.
Mr Feltes said that he suspected that the “soy sell-off today is driven by favourable South American weather”, besides the “likelihood that Chinese acceleration of US soy purchases is unlikely until mid-February forward”.
Karl Setzer at Agrivisor noted that “private analysts continue to raise their Brazilian soybean crop estimates, with some now approaching 125m tonnes”.
‘Moisture situation is still problematic’
Not that all commentators were quite so upbeat on South American weather and crop prospects, it has to be said, with Oil World, for instance, cutting by 1.2m tonnes to 4.3m tonnes its forecast for the gain in the region’s soybean output in 2019-20.
While raising its forecast for the Brazilian harvest, the respected analysis group cut expectations for Argentina and Uruguayan output.
“In Argentina the moisture situation is still problematic in around one-third of the Buenos Aires province,” Oil World said, adding that “further downward adjustments would become necessary, if the required rainfall does not arrive”.
‘Concern is growing about dryness’
But South American worries appeared a little more effective in offering some support for corn – not that this prevented the Chicago March contract dipping 0.5% to $3.87 ¼ a bushel in late deals.
“Some concern is growing about dryness in the corn growing areas of Brazil, especially towards the effects it could have on the safrinha crop in Mato Grosso, which produces 42% of the total second corn crop,” said CHS Hedging.
“Mato Grosso has seen 57% of its normal precipitation the last two weeks.”
Dr Michael Cordonnier at Soybean and Corn Advisor flagged that Mato Grosso safrinha corn sowings were, at 0.4% complete according to latest data from research institute Imea, well behind 1.4% completion as of a year before – although of course which the sowings window remaining wide open.
“Planting is getting off to a slower start compared to last year because delays in harvesting the soybeans,” after a delayed soy seeding season from September.
This when Brazil needs a strong safrinha corn crop to replenish stocks drained by an enthusiastic 2019 export programme.
“The real interest in Brazil will be what we see for double cropping as that will greatly affect what the country can export on corn,” Mr Setzer said.
“Even with a large corn crop Brazil may not export as much as last year given the shortage it created domestically.”
Not that rival US exports have improved on their slow start to 2019-20, with shipments last week pegged at 345,859 tonnes, down 140,000 tonnes week on week, and below a forecast range of 450,000-800,000 tonnes.
Also helpful to corn was a strong performance by rival grain wheat, which in Chicago stood up 2.2% at $5.82 ¾ a bushel for March delivery, hitting the highest for a spot contract in 17 months.
Kansas City hard red winter wheat stood up 1.1% at $4.99 ½ a bushel, finding it tricky to get a foothold above a $5.00-a-bushel level it has not closed at or above in 11 months.
The gains were attributed in part to a strong lead from Paris soft milling wheat, which for March added 1.3% to E198.25 a tonne, adding to gains of the last session (when Chicago was closed), and an 11-month closing high for a spot contract.
Paris-based Agritel flagged the boost to French wheat prices from “strong international demand”, at a time when transport strike is sapping the country’s logistical abilities.
In fact, “these issues are benefitting German ports”, the analysis group said.
Mr Feltes also noted “elevated Argentine wheat sales to Asia amid a reduced Australian wheat exportable surplus”, reducing the threat of the South American country competing hard on other markets.
Back among soft commodities, cocoa continued its spike higher spurred by worries of a weather setback to West African output.
New York cocoa for March closed up 0.8% at $2,818 a tonne, the highest finish for a spot contract in eight months.
“The upswing is due to concerns about a lower mid-crop in Ivory Coast, the world’s largest producer, after the country experienced too little rainfall in recent weeks,” said Commerzbank.
“Though there have been some patchy rain showers in the meantime, these have not been enough in many places to offset the moisture deficit,” potentially curtailing cocoa pod growth.
That said, “the fears about significant crop shortfalls appear excessive at the current time given that the period when some rainfall is possible is not over yet”, the bank added.
“The main crop, which is still underway, is certainly no cause for concern - between the start of harvesting in October to mid-January, shipments to the Ivorian ports have totalled 1.35m tonnes, and as such are 9% up on the same period last year."