It was more of a deal-on day, with some predictable results for ags.
“Reports of US and China advancing to a phase one trade deal rallied equities and selected commodities,” said Terry Reilly at Futures International earlier.
“The on again-off again trade deal is apparently back on according to trade sources,” said Karl Setzer at Agrivisor, with such thinking following a Bloomberg report that Washington and Beijing negotiators are moving closer to agreeing the level of tariffs removed in any phase one agreement.
On external markets, Wall Street shares bounced by 0.7%, while Brent crude jumped by 3.7%, albeit reflecting too ideas that Opec and allied producers are poised to extend production curbs, and with support from official US data showing a large drop in domestic crude stockpiles.
So it was little surprise that cotton, ever vulnerable to US-China trade talk, added 1.0% to 64.70 cents a pound In New York, climbing back above its 50-day moving average, as surrendered in the last session.
A return by China to buying cotton for state stockpiles, for the first time in five years, is also seen as positive for prices, although it has to be noted that reaction in the country itself has been muted.
Dalian cotton futures for May edged 0.3% higher overnight to 12,970 yuan a tonne, but remain down 4.3% month on month, and well below a contract high of 15,390 yuan a tonne set in July.
‘Weather leans negative’
In Chicago, soybeans, also sensitive to US-China trade hopes, gained 0.8% to $8.78 a bushel for January delivery, their best performance in nigh on a month.
OK, on the downside for prices, “Brazil weather is generally favourable with rain and additional rain forecast over the next 10 days,” CHS Hedging noted.
“Crop production estimates are likely to rise if the weather holds with 128m tonnes being whispered as the top-end possibility.”
At RJ O’Brien, Richard Feltes said that “weather leans negative” for futures, with “70%, five-day Brazil precipitation coverage, while Argentine dry areas shrink by the end of next week to the south eastern quarter of the belt”.
However, on the plus side was the fact that soybeans have been sold down heavily already.
“Commodities have been pressured for several weeks and for soybeans, the contract is heavily oversold,” Agrivisor’s Karl Setzer said.
In fact, “this could easily bring the speculative crowd back to the complex, even if just a place to park money for now.
“This is just what the commodity market needs to recover recent losses.”
‘Attractive crush margins’
Furthermore, there was support from the US cash market, with Mr Feltes noting that “13 US crushers yesterday upped soy basis amid dwindling soy inventory.
Indeed, “attractive cash soy crush margins suggest a continued high US crush rate”.
Chicago soyoil futures for January gained 0.8% to 30.47 cents a pound, also helped by the US Department of Agriculture announcement of 20,000 tonnes of US supplies of the vegetable oil sold to Morocco.
Also helpful was a positive close by Kuala Lumpur palm oil which continued its trend of early weakness, followed by late strength, to end up 0.9% at 2,773 ringgit a tonne, the best close for a benchmark contract in two years.
‘Supply concerns remain’
Wheat ended higher too, adding 0.5% to $5.27 ½ a bushel in Chicago for March delivery, to climb back over its 10-day moving average.
“Supply concerns remain after the recent downgrade in Australian wheat production, declining conditions of French wheat due to excessive rain and weather concerns in Argentina’s wheat areas,” said Benson Quinn Commodities.
Terry Reilly at Futures International flagged support for wheat from the “renewed hopes China and the US will get a trade deal done”, with wheat, while not so strongly exposed directly to deal hopes, suffering in the last session from some selling referred from other grains.
At Global Commodity Analytics, Mike Zuzolo noted that “we are now seeing a return of wheat-corn spread trading”, with corn “the short side of the spread”.
“I’m wondering if the wheat isn’t close to a technical low,” he added.
Still, funds’ apparent return to Chicago wheat was not so positive for Minneapolis spring wheat, which they have been heavily shorting, and which ended up a more modest 0.3% at $5.15 a bushel for March, extending its unusual discount to its lower protein peer.
And nor, as Mr Zuzolo mentioned, was it a support to corn futures, which for March ended down 0.7% at $3.78 ½ a bushel.
US ethanol data for last week showed production up a marginal 1,000 barrels a day at 1.060m barrels a day, while stocks gained 362,000 barrels to 20.64m barrels.
“The weekly ethanol data wasn’t price-negative in my view, but the sharp increase in unleaded stocks made it more that way,” Mr Feltes said.
Although there was more talk of tight Brazilian supplies - and the idea that, as Benson Quinn Commodities said, “Brazil has reportedly exhausted its exportable stocks, removing one of our leading competitors in the global market” - it looked like investors were waiting for evidence of importers’ demand switching to the US before buying into the story.
Back in New York, arabica coffee futures for March closed lower too, by 2.1% at 121.25 cents a pound.
While both the International Coffee Organization and research institute Cepea flagged the gains in Brazilian arabica prices – now at a five-year high premium against robusta values – the latter also hinted that this could boost 2020 crop prospects.
“Coffee prices are rising significantly in the Brazilian market, which has increased the purchasing power of producers,” Cepea said.
“This cash rebound and the return of rainfall in the producing regions have caused coffee farmers to turn their attention to crop treatment for the 2020-21 season.”
Previously, amid a reign of low prices, “which limited the purchasing power of producers, many were concerned with maintaining crop cultivation this season”.
But New York raw sugar for March fared better, adding 1.6% to 13.06 cents a pound – the first close for a spot contract above 13.00 cents a pound since February.
The sweetener was helped by the rally in Brent crude, which in boosting prospects for prices of fuels such as ethanol also bodes well for values of sugar, which competes with the biofuel for cane in the likes of Brazil.
Technicals for the sweetener remains positive too, with futures remaining in an uptrend, which actually earlier saw them touch their 200-day moving average, at 13.10 cents a pound, earlier for the first time since June.
Will the line be broken above in the next session?