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Evening markets: Demand ideas divide climbing cotton from sagging soy


Cotton futures starred on Tuesday, amid hopes that the US and China will after all manage to seal some kind of interim trade deal.


Chinese official spokesman Geng Shuang said that there was “no difference” between the country and the US over a trade deal, adding that “this economic and trade agreement will be of great significance, beneficial to China, the United States and the world”.


The comments followed those on Monday from US Treasury Secretary Steven Mnuchin, who said that the two nations had reached a “fundamental agreement”.


‘Key influence’

Not that all ag investors were convinced by the newsflow, with CHS Hedging talking of “China putting a damper on a trade deal”, while Benson Quinn Commodities reporting that “statements by the Chinese indicate that they are not done negotiating this Phase 1.


“They also indicate that they want existing tariffs rolled back before making large scale purchases” of US ags.


Still, Terry Reilly at Chicago-based Futures international noted that “China was said to have approved the phase one trade deal” with the US.


And in New York, cotton, an ag particularly sensitive to US-China deal ideas, closed up 2.1% at 63.53 cents a pound for December – albeit this after losing ground in the last session, in a tumble blamed on waning expectations of a trade agreement.


“The flow and ebb of US China trade sentiment” is proving for cotton “a key influence, and will very likely remain so,” said Tobin Gorey at Commonwealth Bank of Australia.


Reserve purchases ahead?

Also thinking of China, and cotton, Louis Rose at Rose Commodity Group said that “China’s strategic reserve now has an estimated 9m bales remaining after this season’s offtake of nearly 4.6m 480-pound bales”, spurred by this year’s round of auctions from the inventories.


“It certainly looks as if China will need to begin purchasing for its reserve again in the not-too-distant future.”


According to Mr Geng, China has already bought 320,000 tonnes of US cotton this year, alongside 230,000 tonnes of wheat, 700,000 tonnes of pork, 700,000 tonnes of sorghum and 20m tonnes of soybeans.


‘Huge decline’

Not that soybean futures themselves managed headway, closing indeed down 0.8% at $9.34 a bushel for November, in Chicago, hurt by some poor US demand data.


The US soybean crush last month fell by 9.2% month on month to 152.566m bushels, industry group Nopa said, a figure that was well below the market forecast of 162.193m bushels.


Adjusted for the extra day in August, the crush fell by a slightly more modest 6.2% last month, although that still represented a “huge decline”, said Mr Reilly.


“It was also down 5.1% on a daily adjusted basis from September 2018.”


‘Melting quickly’

As an extra setback to soybean, and corn, prices hopes are improving for the US harvest, in terms of the clear up from the weekend winter storm.


“Snow cover from the blizzard over the weekend is melting quickly across the northern Plains and most of the snow cover should be gone by the weekend as temperatures turn warmer,” said Maxar.


“Across the western Corn Belt, drier weather this week will ease wetness and favour crop drydown and harvesting,” although wetter weather further east will keep fieldwork boggy.


At RJ O’Brien, Richard Feltes said that “weather leans negative” for prices, “with a largely open week ahead for US harvest”, besides too a wetter tone to the South American weather outlook for the second half of this month, to ease worries over dryness as corn and soybean crops are seeded there.


‘Susceptible to a pullback’

Indeed, Chicago corn futures for December eased too, by 1.2% to $3.93 a bushel.


“Many regions of the Corn Belt are again harvesting crops,” Karl Setzer at Agrivisor said.


CHS Hedging said earlier on that a “lack of fresh news regarding weather, crop reports… on top of a nice run higher make corn susceptible to a pullback”.


Spring dips

Wheat futures also suffered a reversal fostered by the weather, with the improved weather for the northern Plains speaking of some hope of bringing in the last of the US spring wheat crop (with a stack of Canada’s still in the field too).


Minneapolis spring wheat futures for December dropped by 1.2% to $4.54 ½ a bushel, pulling Chicago soft red winter wheat for December 0.75 lower at $5.07 a bushel.


The reversal theme fed into the Kansas City hard red winter wheat market too, which dipped 1.1% to $4.21 ¼ a bushel, returning some of the ground it made in the last session against its Chicago peer, on worries over frost damage to the southern Plains hard red crop seeded for 2020’s harvest.


CHS Hedging added that, for US crops overall, “it will take time before the market can get an idea of how much damage has been done by snow and freezing temperatures over the weekend”.

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