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Evening markets: Fresh China levies on US imports send cotton, soybeans into reverse

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The upbeat sentiment around earlier over US-China trade accord did not just ease, but did an about turn, as Beijing revealed a further slew of retaliatory tariffs.

 

They will from September 1, among other duty raises, impose a further 5% levy on soybeans imports from the US, and a further 10% on beef and pork.

 

From December 15, Chinese imports of US corn, sorghum and wheat will attract a further 10% tariff.

 

Sure, at Richard Feltes at RJ O’Brien noted, “China wasn’t buying any US products anyway.

 

“But their action this morning further undermines hopes for any breakthrough in US-China trade negotiations.”

 

‘Impending large cancellations’

Cotton futures, which had risen earlier on US comments which raised hopes for trade accord with China, fell back to 58.19 cents a pound in late deals in New York, down 1.3% on the day.

 

(And 2.3% below their intraday high.)

 

Plexus Cotton cautioned that worse may be to come from China for cotton bulls, noting “rumours of impending large cancellations” by the country of import orders from the US = washouts “which could total 1m bales or more.

 

“Given the significant price differential on some of the earlier sales,” made at far higher values earlier in the year, “it is plausible that not all of the 1.76m running bales that are currently open with China are going to be honoured.

 

“This seems to have weighed on traders’ minds.”

 

‘Worrisome’

In Chicago, it was soybeans, which had also gained earlier helped by China-US hopes, which showed a similar reversal, standing 1.5% lower at $8.55 ¾ a bushel for November in late trading, falling close to three-month lows.

 

The China news more than offset the prospect of final Pro Farmer tour results later, after the close, which while expected to prove relatively sanguine on prospects for US corn output this year, may not be so reassuring on soybeans.

 

State by state data for corn yields from the tour have come in below the US Department of Agriculture estimates, “but are close enough to preclude changing overall narrative of adequate corn supplies,” said RJ O’Brien’s Richard Feltes.

 

“Low soybean pod counts, however, are worrisome.”

 

‘Not an actual sale’

Benson Quinn Commodities, in Minnesota, said that “It has been estimated that there may be as many as 8m acres of beans that have not bloomed yet,” let alone set pods, and with September looming.

 

“The days are decidedly short in our trade territory.”

 

Meanwhile, back on the China demand side, traders continued to downplay the purchase by China of a cargo of US soybeans, as appeared on USDA weekly data on Thursday.

 

“There are reports that this was the pricing of overruns on recent vessels, and not an actual sale given the small volume,” said Karl Setzer at AgriVisor.

 

He added that “China did not purchase any US pork last week, which is also a concern for future developments.”

 

Chicago lean hog futures, by the way, traded down the exchange limit of 3.0 cents at 59.30 cents a pound for October, setting a fresh five-month low for a spot contract.

 

‘Leans negative’

Corn futures for December, meanwhile, dropped 1.2% to $3.66 ¾ a bushel, undermined by ideas of an OK Pro Farmer yield figure later.

 

Bulls were also little helped by an increase of 1 point, to 62%, by FranceAgriMer in the proportion of French corn rated “good” or “excellent”, dispelling some of the gloom over the crop, which was tested by heatwaves earlier in its growing season.

 

Mr Feltes added that the Midwest weather outlook “leans negative” for crop prices, “with 50% 5 day precipitation coverage, limiting dry Midwest areas to 10% of the Corn Belt”.

 

Furthermore, there is “no sign of frost next week”. The date of the first Corn Belt freeze is a big topic of conversation, given that it stands to bring a half to development of a crop that, having been seeded late, is running late.

 

Mixed wheat

Wheat futures did find some buyers – at least Chicago soft red winter wheat did, adding 0.4% to $4.73 ¾ a bushel for December delivery in late trading, climbing back above its 10-day moving average.

 

Theories for the gains ranged from pre-weekend profit-taking on short bets, to support from a 0.5% decline in the dollar.

 

This will boost the competitiveness of US wheat exports, which have actually been faring pretty well, and are not reliant on China trade, whatever.

 

It tallied that, with the euro adding 0.6% against the dollar, Paris wheat for December should ease, by 0.3% to E170.00 a tonne at the end of play, only E0.25 a tonne above its contract closing low.

 

However, it did not tally that Kansas City hard red winter wheat, the main US export type, was struggling too, shedding 0.5% to $4.02 ¼ a bushel for December delivery.

 

There were some ideas of strange pulls from option markets, as September contracts expire.

 

And, as Agrimoney has suggested, it may be a bit early yet for hard red winter wheat to slow its drive to win demand.

 

Coffee cools

Back in New York, arabica coffee fell by 1.3% to end at 96.05 cents a pound for December.

 

Somar forecast rain for some major Brazilian arabica-growing areas, including much of Minas Gerais, easing concerns that early flowers for 2020 crop will abort.

 

Furthermore, the Brazilian real proved even weaker than the dollar, shedding 1.2% against the greenback, as worries over Amazon fires prompted some European leaders to block trade with the South American country.

 

A weaker real cuts the value of assets, such as coffee, over which Brazil has a big influence.

 

Sugar down

Similarly, raw sugar for October lost 1.0% to 11.47 cents a pound, undermined also by a 2.2% drop in Brent crude, which implies weaker values of ethanol, and so means sugar has to compete less hard for its share of Brazil’s cane crop.

 

That said, ethanol parity, calculated by S&P Global Platts at 13.34 cents a pound as of Wednesday, offers some headroom before such a dynamic is really felt.

 

The sugar price drop came despite data from industry group Unica showing Brazilian Centre South output of the sweetener starting off this month weaker than investors had forecast.

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