May bequeathed to June a modest boost to ag markets, in terms of a story which broke after the close of markets last week.
Sure, US President Donald Trump’s comments late on Friday on the new security law China is imposing on Beijing were hardly conciliatory.
He said that the US would revoke special trade privileges for Hong Kong and sanction officials from the territory and mainland China, imposing some visa restrictions.
However, particularly important from an ag perspective, Mr Trump stayed clear of the phase one trade agreement signed in January, in which China committed to buy a stack of US ags over two years.
‘Didn’t mention any new tariffs’
“Trump announced ending support for the WHO, but didn’t mention any new tariffs or sanctions for China as some feared,” said Mike Mawdsley at First Choice Commodities.
All of the new sanctions “were far away from the trade issues, and nothing of the phase one trade deal was brought-up, thankfully,” said Mike Zuzolo at Global Commodity Analytics.
“President Trump’s reaction… I would consider ‘soft’ in terms of not disrupting trade flows, or worsening the trade relationship, between the two countries.”
Many investors in other markets took a similar line, with Hong Kong shares bouncing 3.3% on Monday, while Shanghai ones gained 2.2%.
However, currency markets signalled that some jitters remain, with the safe haven of the dollar, having stood 0.5% lower earlier, retracing some ground to stand down 0.3% as of 09:45 UK time (03:45 Chicago time).
The Chinese renminbi, which gapped 0.4% higher earlier against the dollar, eased back to a flat position
Similarly with ags. The Bcom ag subindex, while standing up 0.3%, had posted 0.7% headway earlier, on its quest for what would be its first winning month of 2020, having completed – unusually – five successive negative months. (For the first time since 2014.)
‘Going to struggle to develop’
Ags exposed to US export sales to China remained in positive territory, if off early highs.
New York cotton for July added 0.5% to 57.87 cents a pound, also getting support from dry weather in the key US growing state of Texas.
With weather forecasts having turned “very hot… dryland crops in the [Texas Panhandle] region, to the extent there has been planting, are going to struggle to develop in that context”, said Tobin Gorey at Commonwealth Bank of Australia.
Louis Rose at Rose Commodity Group said that “most of the [US cotton] belt is expected to see only light precipitation this week”.
‘Significantly lower planted area’
Sure, drier weather may be welcome for crops in some eastern states such as the Carolinas and Virginia, which were inundated by tropical storm Betha some 10 days ago.
What crops have been planted, that is, with Mr Rose notng that even before Bertha, “this area was already well off its average sowing pace and, with final planting dates having been reached, we must consider lost acreage in this area.
“The Atlantic coast region and the Midsouth now will likely have significantly lower planted area versus the USDA’s March 31 projection.”
In Chicago, soybeans for July added 0.2% to $8.42 a bushel.
Even with some late pressure caused by the China-US fears, soybean futures managed a positive week last week, in what some are seeing as potential evidence that a price floor has been set, with persistent rumour of Chinese buying of US supplies.
Soyoil has been, and remains, a support, gaining 0.5% itself to 27.52 cents a pound for July, as easing in Covid-19 lockdowns boost hopes for a revival in demand of an ag reliant largely for demand on foodservice and biodiesel plants.
Rival palm oil was higher too in Kuala Lumpur, up 1.6% at 2,329 ringgit a tonne, amid hopes of further strength in Malaysian exports, which have been boosted by a resumption of Indian demand and, for June, the cut to zero in the export duty, which was 4.5% for May.
ITS estimated Malaysia’s palm exports last month up 7.0%, with rival cargo surveyor AmSpec putting the increase at 8.4%.
But, back in Chicago, corn, less exposed to Chinese buying, nudged 0.1% lower to $3.25 ½ a bushel.
Pressure came too from ideas of a decent start to the US crop, with Benson Quinn Commodities saying that “the trade looks for corn ratings to improve on Monday afternoon”, when the USDA unveils its latest weekly Crop Progress report.
The first reading on corn condition, released last week, came in a 70% “good” or “excellent”.
On a more positive note for corn is the extent to which funds have already sold down in the grain, with their net short up more than 30,000 lots in the week to last Tuesday to 276,203 contracts, regulatory data late on Friday showed.
The report “leans supportive” for prices, Benson Quinn Commodities said.
‘Good quality with average yields’
Wheat shed 0.3% to $5.19 a bushel in Chicago for July delivery, despite some worries over heat here too.
Dr Mark Welch at Texas A&M University noted that the weather hazards outlook “through June 4 shows much-above normal temperatures reaching from the Montana/Canadian border down to northeast Colorado and northwest Kansas.
“There the heat begins to overlap drought conditions.”
Still, on a more negative note, drier weather will help areas where crop is being harvested, or drying down ahead of harvest.
Indeed, US Wheat Associates noted in its first weekly briefing on the US winter wheat harvest that “intermittent showers have slowed harvest progress in north central Texas and southern Oklahoma”, but added that “warmer, drier weather is expected” this week.
The briefing also said that for hard red winter wheat, “early sample cutting has indicated good quality with average yields and test weights”.
‘Cap the rally’
Meanwhile, CBA’s Tobin Gorey - while noting the forecast for “very hot weather in some US hard red winter wheat regions”, and terming them broadly “unhelpful” – flagged that recent gains in US wheat prices have cut their competitiveness on international markets.
Sure, latest weekly US export sales data “were hefty… consistent with the competitive US pricing at that time. And we suspect there is another week of strong sales to come”.
However, “US prices now though are no longer so obviously competitive – perhaps that will cap the rally”.