Storms beset financial markets to close the week and, as far as cotton was concerned, more than figuratively.
The most important tempest concerned the heightened tensions between the US and China, after Beijing ordered the Washington to close its mission in Chengdu. This after the US earlier this week forced Chinese officials to quit their Houston consulate.
Many markets took the news badly, with the S&P 500 share index down 1.1% in afternoon deals, after a 3.9% slump in Shanghai stocks, while London shares dropped 1.4%.
Brent crude traded 0.8% lower at $42.96 a barrel while, by contrast, the haven of gold added 0.8%, topping $1,900 an ounce at one point for the first time since September 2011.
Among ags, cotton took the deterioration in China-US relations particularly badly, plunging by 3.7% to 59.70 cents a pound in New York for December delivery.
The dismal US export sales data for last week, as released on Thursday – showing net cancellations of some 2,200 running bales of upland cotton, new and old crop combined – signalled that China, by far the most notable buyer of US cotton post-Covid, had stopped buying for now.
Now, the deteriorating Washington-Beijing relations hinted that China’s cotton importers may not be coming back to the US any time soon.
Added to this was some positive production news, in terms of rains for dry parts of West Texas, the key US cotton-growing region.
“West Texas is going to get some monsoon rains coming in from the Pacific,” Jack Scoville at Price Futures said, adding that Tropical Storm Hanna was set to provide some moisture too, although more to eastern Texas.
“This should do some good to the crops there,” he told Agrimoney, if noting that for many fields the best that could be expected was a stabilisation of yield potential.
‘Temporarily tight situation’
Soybeans, another key US export to China, suffered a bit too – but less so, with ideas that trade in the oilseed is less likely to suffer, given that China has less choice in alternative markets.
“The Chinese are buying beans and could continue to purchase US beans into August,” said John Walsh at Walsh Trading.
“The Brazilian has sold himself into a temporarily tight situation. The Argentinian market is mired in political issues.
“This opens the door for the US despite the political wars going on.”
The US Department of Agriculture announced the sale of 252,000 tonnes of soybeans (all but 6,000 tonnes for 2020-21) to an “unknown” buyer, but which many investors felt was likely to be China, with talk, as common of late, of interest in further purchases too.
Oil vs meal
Chicago soybean futures for August stood 0.3% lower at $9.04 a bushel, with the new crop November lot down a modest 0.1% at $8.98 ¼ a bushel.
Soymeal offered some support, in edging 0.1% higher to $293.40 a short ton for September, the best-traded lot, after the USDA also revealed the sale of 133,000 tonnes of the feed ingredient to the Philippines for 2019-20.
Soyoil futures for September eased by 0.3% to 29.83 cents a pound despite the surge in rival palm oil, which closed up 2.6% at 2,778 ringgit a tonne in Kuala Lumpur amid mounting concerns over the hit to South East Asian production from recent floods.
“Soyoil is something we in the US have got,” Mr Scoville said, adding that without the same supply worries as palm oil it was “having trouble holding its own”.
Some investors have pointed at the oil share (ie the proportion of the value of soybean processing products accounted for by soyoil) having earlier in the week approached 35%, an elevated (if not unprecedented) level, up from 28% in March, but now eased back below 34%.
Corn, which has also relied a bit on Chinese demand of late, fell by 0.5% to $3.26 ¼ a bushel for September, while the December lot eased by a more modest 0.2% to $3.35 a bushel in late trading.
Furthermore, for the Midwest a “non-threatening weather forecast with temperatures cooler in the 6-10 day forecast supports potential for above-trend” corn yields, Benson Quinn Commodities said.
Maxar said that “rains in west central Midwest areas by late weekend should improve moisture there, with improvements in south west areas later next week.
“Above-normal temperatures are expected this weekend, but temperatures should be near normal for the balance of the 15-day period, limiting the potential for heat stress.”
‘Futures up sharply’
It was left to wheat to hold up hopes for grain bulls, adding 1.5% to $5.37 ½ a bushel for Chicago soft red winter wheat for September (whose credentials for a premium are discussed by Agrimoney here).
Kansas City hard red winter wheat for September stood up 1.4% at $4.47 ½ a bushel.
The headway was attributed to a somewhat delayed reaction to Thursday’s International Grains Council briefing which cut estimates for harvest in many exporting countries – besides ideas that China remains interested in US supplies.
“US wheat futures were up sharply on follow through bullish sentiment from IGC’s outlook for tighter global supplies and talk of China import interest for US wheat,” said Terry Reilly at Futures International.
Thursday’s USDA export sales report confirmed two cargos of US soft red winter wheat bought by China.
CHS Hedging also noted that “outstanding US wheat export sales for the year at 5.516m tonnes are running ahead of last year,” at 5.106m tonnes, with actual shipments a touch higher too.
Meanwhile, Paris wheat futures for December offered a bit of support in closing up 0.9% at E186.50 a tonne, ending back above 100-day and 200-day moving averages, despite the headwind of a firmer euro.