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Morning markets: China-US hopes, Argentine elections overhang ag markets

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Some markets took succour from further signs of progress in China-US trade talks.

 

Negotiators from the two countries said over the weekend that they were “close to finalising some sections” of an interim trade agreement.

 

And shares rose by 0.9% in Shanghai and by 0.8% in Hong Kong, while ticking 0.3% higher in Tokyo, while the renminbi edged higher against the dollar to amongst its strongest levels of the past two months.

 

Blow for the sector’

 

However, trading in agricultural commodities was a bit more cautious, with some idea that considerable hope for China-US progress had been baked into values already.

 

Tobin Gorey at Commonwealth Bank of Australia termed “justified” optimism over a China-US deal, and the potential boost to US exports of many ags.

 

However, “perhaps the market, classically, buying the rumour is now selling of this almost-fact”.

 

In New York, cotton, one big US export to China in typical times, stood down 0.1% at 64.81 cents a pound for December delivery, as of 09:45 UK time (04:45 Chicago time).

 

Argentine elections

Besides, China-US accord was not the only political story with a big relevance for ag markets anyway, with Argentina, a big exporter of the likes of corn, soybeans and wheat among other ags also in the news.

 

Also over the weekend, Argentine presidential elections saw the victory of Alberto Fernández over the incumbent Mauricio Macri.

 

The Peronist victory is seen as potentially heralding a return of the elevated tax regime on ag exports as espoused by former president Cristina Fernández de Kirchner, who was running mate of Mr Fernández (no relation) in the election.

 

‘Aggressive in selling’

As Agritel said, the result “is a blow for the local agricultural sector as export duties could be restored.

 

“These duties were cancelled by the former President Mauricio Macri in 2015.”

 

While longer term that could be viewed as a positive for US row crop farmers and Chicago prices - if Argentine peers are tempted into hoarding crop, or switching to the likes of barley which less affected by export levies – the short-term could see enhanced selling.

 

Some investors believe Argentine “producers and exporters will become aggressive in selling agriculture commodities before changes in the tax structure take place”, said Terry Reilly at Futures International.

 

‘Abundant rains’

Then there is US harvest to take into account, a period typically of pressure on prices as supplies are renewed, but also facing currently some idea of (further) weather delays to progress, a factor more supportive to values.

 

Maxar said that in the Midwest, “abundant rains in southern, central, and eastern areas this week will stall corn and soybean harvesting”.

 

In Brazil, where corn and soybean sowings are in progress, the weather outlook was mixed, with the weather service saying that “rains in southern areas this week should improve moisture there, although some dryness will continue in central areas”.

 

‘Needs confirmation’

The outcome was in the soybean market some recovery in values from a poor close to last week, with Chicago’s November contract adding 0.3% to $9.22 ¾ a bushel.

 

That said, whether the lot hangs on to gains may depend on whether US export sales of soybeans show the uptick that buyers are hoping for now that China is back more onside.

 

This means a strong focus remains on (any) US Department of Agriculture announcements, through its daily alerts system, of large US export sales.

 

“Believe what you want regarding China, the size of the US crop and overall demand - the trade needs nearly real-time confirmation,” said Benson Quinn Commodities.

 

‘Tighter vegetable oil supplies’

Another dynamic in play in oilseeds is the recovery in vegetable oils, with Kuala Lumpur palm oil on Friday touching its highest in nigh on 17 months, encouraged by talk of healthy demand, spurred by Indonesian and Malaysian biodiesel programmes.

 

Futures International’s Terry Reilly flagged “talk of tighter world vegetable oil supplies in 2020 amid increasing feedstock for biodiesel production and larger imports by China and India”.

 

The Kuala Lumpur palm oil market was actually closed on Monday, but prices remained buoyant on China’s Dalian, where the January contract closed up 0.6% at 5,104 yuan a tonne, earlier reaching a contract high of 5,158 yuan a tonne.

 

Still, rival soyoil for January eased 0.2% to 6,206 yuan a tonne on the Dalian, although in Chicago the December lot added 0.5% to 31.10 cent a pound, rebounding after being dragged lower in the last session by falling soybeans.

 

“Higher palm oil prices due to inclusive biofuel policies in Malaysia and Indonesia helped soyoil prices,” said ADM Investor Services.

 

(One wrinkle the market will be getting its head around too is that Argentina is the top exporter of soyoil.)

 

‘Hit and miss’

However, grains eased in Chicago, with corn futures for December standing down 0.4% at $3.85 ¼ a bushel.

 

On the plus side for prices, in the US, “cash remains firm and harvest progress is hit and miss,” said Benson Quinn Commodities.

 

However, export demand for US supplies “is expected to remain poor until January, February, March, at least.

 

“What happens after that depends on South America, most likely.”

 

Export competitiveness

Nor was corn helped by rival grain wheat, which fell by 1.0% to $5.12 ½ a bushel in Chicago for December delivery, more than reversing gains of the last session.

 

One fear is that Argentine shippers, with a large wheat harvest in progress, may be tempted to accelerate exports ahead of the change of president.

 

This would nullify the support to values from rising prices in the Black Sea, which has been the price-setter in exports.

 

“Black Sea spot prices continue to creep higher, floating all other boats with them,” CBA’s Tobin Gorey said.

 

Seasonal pattern

Richard Feltes, meanwhile, at RJ O’Brien noted anyway a seasonal tendency for Chicago wheat prices to fall at this time of year.

 

In fact, Moore Research analysis “notes that December has declined from October 21 through November 24 in 14 of the last 15 years”, he said flagging a “strong tendency” for prices “to erode lower from late October through Thanksgiving”.

 

“During this period of seasonal weakness in wheat, traders will want further evidence of steadily rising exporter wheat offers, and corresponding buyer acceptance, to sustain the price uptrend” which started in early September.

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