Cotton futures, having in the last session started strongly and ended meekly, behaved the opposite this time, with a sluggish start giving way to a firm finish.
New York cotton futures for December ended up 1.5% at 65.70 cents a pound, a four-month closing high for a spot contract, and taking gains for this month to 8.0%.
Talk of China buying cotton for its reserves again to allow the rotation out of old supplies, and after a five-year programme of running down inflated stockpiles to base levels, remains in the background, even though it is Brazil which is currently seen as the beneficiary.
But there is also talk of the wintry turn in US weather having hurt US production prospects.
‘Quality no doubt waning’
While US cotton harvesting has been “active”, it has occurred “around storms that have hit most growing areas in the last week,” said Jack Scoville at Price Futures.
“Snow was reported in Texas,” the top US cotton-growing state, “and there are concerns that quality could have been affected.
“Rains and snows are forecast for Texas this week and eastern [cotton belt] areas should get more rains.”
At Rose Commodity Group, Louis Rose said that “we continue to believe the US crop will prove to be significantly smaller than the US Department of Agriculture’s latest estimate”, of 21.71m bales.
While it will still “likely be large enough to be considered bearish… quality of the crop is no doubt waning with recent multiple rain evets across major producing areas of the US”, Mr Rose said.
Furthermore, there is some expectation of decent weekly US export sales data on Thursday, with long-held anticipation that an upturn in volumes is nigh.
‘China appears to be annoyed’
What did not look like providing such a boost this time was hopes specifically of a China-US trade deal, given the soft performance of soybeans, another ag seen as particularly exposed to trade relations between the two countries.
The Chicago January soybean contract ended down 0.3% at $9.30 ½ a bushel, with uncertainty over a deal, and Chinese demand, seen as one pressure on values.
“It still remains to be seen whether the Phase 1 agreement between the US and China will see China’s intention – communicated in particular by the US – to buy US agricultural products worth $50 billion actually translate into genuine purchases on this scale,” said Commerzbank.
“For one thing, this would mean that China would double its import volume as compared to last year before the escalation of the trade dispute – which is a highly optimistic assumption.”
For another, the bank noted reports “that China appears to be annoyed by the way in which the US is attempting to dictate that large quantities be bought from the US, irrespective of the price competitiveness of different providers and without taking the demand situation in China into account.”
‘Crushing less soy’
CHS Hedging said that soybean prices “waned on midday chatter that a deal may not get done in time for signing at the summit meeting” between Chinese and US presidents.
“A lack of new Chinese purchases of US soybeans also weighed on the soybean market.”
The US Department of Agriculture, through its daily alerts system, did report some export sales of US soybeans, but of a relatively modest 132,000 tonnes, and to an “unknown” import destination.
In fact, Bloomberg reported that Chinese processing plants “are crushing less soy in anticipation of weak soymeal demand as outbreaks of African swine fever cut the country’s hog herd”.
‘Better biodiesel demand’
Support for soybeans from soyoil also waned, with the vegetable oil ending down 0.02 cents at 30.98 cents a pound in Chicago for December, despite the strong performance overnight by rival palm oil.
Palm oil futures for January closed up 3.3% at 2,496 ringgit a tonne in Kuala Lumpur, the best finish for a benchmark contract in nigh on 18 months.
“Lower output” regionally in South East Asia “with better biodiesel demand is pushing values,” said Benson Quinn Commodities.
Terry Reilly at Futures International also noted a forecast by brokerage Sunvin Group that India’s imports of edible oils will tick higher to a record 15.75m tonnes in the year to October 2020, with palm oil seen accounting for 9.8m tonnes of that.
Oil- (rather than meal-) heavy oilseed rapeseed did find some strength in palm oil, adding 0.2% to E382.50 a tonne in Paris for February delivery, gaining too from ideas of a further decline in European Union sowings for the 2020 harvest – ideas supported by comments in Bayer’s results.
Back in Chicago, soft red winter wheat futures for December eased by 0.3% to $5.09 ¼ a bushel, ending, narrowly, below their 20-day moving average for the first time in nearly two months.
“World values continue to dictate wheat prices,” said Benson Quinn Commodities, reminding of Tuesday’s results of a Gasc tender which showed that while the Egyptian grain authority is “willing to pay more, Russian business still overhangs the market.”
There will come a time when Russian sellers, the world’s top wheat exporters, “decide to pull the trigger and put their selling shoes on”.
The Argentine election result also continues to dog the market, with ideas that the country’s merchants may accelerate shipments to beat a potential rise in export taxes once new president Alberto Fernandez takes office in December.
‘Cash markets firming up’
However, Chicago corn futures for December did manage gains, adding 1.1% to $3.90 ¾ a bushel, climbing back above their 20-day moving average.
US ethanol production data for last week showed an improvement, of 8,000 barrels a day to 1.00m barrels a day, while ideas of poor harvest conditions for now are supporting cash prices.
“The forecasts call for snow later this week across parts of the US Midwest,” CHS Hedging said, adding that “cash markets appear to be firming up and spreads are narrowing in”.
But also supporting values are improved hopes for US exports, after a poor start to 2019-20 (last month).
“Brazil corn prices FOB hit their highest level in three months and reached slightly above the US Gulf price,” Mr Reilly said.
Meanwhile, as ADM Investor Services noted earlier, there has also been talk “that Argentina may have pulled FOB offers until more is known about export taxes by the new administration”.