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Evening markets: Retreat in trade deal hopes hurts cotton. But US weather jitters remain

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After the exuberance, a bit of a hangover.

 

The bullish spirit which marked the last session, sending futures in many ags to multi-month highs, on ideas of a “phase one” US-China trade deal gave way to an altogether more cautious mood on Monday, as details of the agreement remained scant.

 

As Agrimoney noted earlier, Citi, after scouring China’s statement on the deal, highlighted that it not mention the plan to purchase US agricultural goods, as US President Donald Trump has said.

 

“The implementation on this partial deal can’t be verified based on published documents,” the bank said.

 

“Thus, implementation will be at the mercy of goodwill from both sides.”

 

A Bloomberg report said that the agreement needs further discussions before being signed off.

 

‘Details looking weak’

Not that the idea of hefty Chinese purchases of US ag exports has gone away.

 

At RJ O’Brien, Richard Feltes, said that “trade is awaiting clarity on whether $40bn-50bn of Chinese purchases of US ag commodities will occur over 12 or 24 months, and other specifics of the written agreement that will be forged over next five weeks”.

 

Benson Quinn Commodities said that “Friday’s details are looking a little weak.

 

“President Trump said China would increase its imports of US ag productions to $50bn as part of phase one negotiations.

 

“Particulars are lacking, with no product list, and timing of purchases is vague.”

 

‘In jeopardy of collapsing’

Furthermore, assuming ideas are right that $50bn of purchases would be made over a two year period, “this is not any more than China’s purchases of US ag products in 2017 of $24bn and falls just short of record of $25.8bn in 2012”, Benson Quinn Commodities said.

 

Karl Setzer at Agrivisor put it the support from the apparent agreement “has faded, as China is not as accepting of the trade details as they were made out to be and want more talks before signing the trade deal.

 

“This puts the entire package in jeopardy of collapsing.”

 

Unscathed?

In fact, New York cotton futures fared particularly badly, standing down 1.7% at 62.82 cents a pound for December in late deals, fighting a battle to stay above their 100-day moving average, which they closed above in the last session for the first time in five months.

 

Also weighing on values was a report that Indonesia is considering import duties on 121 textile products, including yarn and fabric, to protect its own textile sector.

 

As for ideas ahead of the weekend that cold temperatures would hurt standing cotton even in Texas, the US’s top growing state, “we can find few opinions that the Texas crop will incur significant damage as a result of sub-freezing temperatures,” said Louis Rose at Rose Commodity Group.

 

‘Already begun agricultural purchases’

Soybean futures, another major Chinese ag purchase from the US in typical times, did not suffer such a retreat – in fact standing up 0.4% at $9.40 a bushel for November in late deals in Chicago, aiming at what would be a 16-month closing high for a spot contract.

 

And, after all, Mr Trump did tweet at the weekend (actually all in capital letters) that “China has already begun agricultural purchases from our great patriot farmers & ranchers”.

 

He added that “they will IMMEDIATELY start buying very large quantities of our Agricultural Product, not wait until the deal is signed over the next 3 or 4 weeks”.

 

And soybeans are the likely first target for such purchases, although there were no announcements by the US Department of Agriculture of US export sales of the oilseed (or any other ags) through its daily alerts system.

 

‘More rain than snow’

And then there is the damage to US crops from the weekend weather to factor in which was, arguably, not quite as harsh as some investors had feared.

 

Benson Quinn Commodities said that “weather for North Dakota was as advertised with most of the state blanketed under 2 feet of snow.

 

“The scope of the system though may have been a little smaller than advertised.

 

“South Dakota and western Minnesota saw more rain than snow.”

 

‘Not competitive’

Whatever, there was not enough concern to keep Chicago corn futures higher, with the December lot standing down 0.3% at $3.96 ¼ a bushel, also having trouble breaking back above the $4.00-a-bushel mark, which it has not closed above in two months, and the 200-day moving average just above that.

 

Karl Setzer also reminded that US corn is “not competitive in global market” (although did acknowledge a “rebound” in ethanol production margins, which could support domestic demand).

 

That said, corn futures retraced only a small proportion of ground gained in the last session.

 

CHS Hedging said that “freezing temperatures over the weekend for much of the western Corn Belt will have stopped the development for a large amount of corn that hadn’t reached maturity.

 

“The large amount of snowfall in North and South Dakota has caused the corn a considerable amount of time needed in order to dry out.”

 

‘Already in poor condition’

Where the North American weather did provide some modest support was in the spring wheat market, on ideas of crop remaining unharvested, with the Minneapolis December contract standing up 0.4% at $5.50 a bushel.

 

“Any spring left to be harvest in North Dakota will not get harvested at all with the large snowfall over the weekend,” said CHS Hedging.

 

“What was left to be harvested was already in poor condition before the snow.”

 

Benson Quinn Commodities said that “the forecast for the next five days is dry for the northern plains but we need lots of warmth and sunshine before anyone can think about getting back in the fields.

 

“It will be couple to upwards of five days before harvest activity resumes after this storm.”

 

‘Caused some damage’

Canola, another crop vulnerable to North American harvest delays, as a huge Canadian crop, edged 0.1% higher to Can$460.00 a tonne in Winnipeg for November

 

And back in Chicago, oats, as a Canadian export to the US vulnerable to logistical delays from snow, as well as harvesting setbacks, soared 2.7% to $2.97 a bushel for December.

 

Kansas City hard red winter wheat was another notable winner among grains, adding 1.3% to $4.24 ¾ a bushel for December, amid ideas that southern Plains frosts, while not such as issue for cotton, were so for newly-sown winter cereals in the area.

 

As Maxar said, “weekend cold temperatures in eastern Colorado, Nebraska, and far western Kansas caused some damage to red winter wheat that has emerged”.

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