The pall cast over financial markets by China’s coronavirus outbreak has diminished a bit, thanks the World Health Organization comment it was “too early” to declare it a global emergency.
Hong Kong shares managed a 0.2% gain, with Frankfurt and London stocks up 1.3% in early trading, while Brent crude edged 0.3% higher to $62.25 a barrel in early trading on Friday, after a three-session losing streak which cost futures values nearly 5%.
However, such relief did not spread to grain markets, whose worries over China spread further than the virus, to concerns about how and whether the country will fulfil commitments to spend some $80bn on US ags over two years.
‘Need to see more sales’
“Trade will need to see more [US] sales especially to China to reverse the downtrend” in prices, said ADM Investor Services, referring in particular to soybeans.
“The lack of business with China is applying persistent pressure to soy futures,” said Karl Setzer at Agrivisor.
And business hardly looks set to pick-up immediately, given the start of China’s new year celebrations, which last for more than a week, which will sideline buyers, even before getting to any fallout to demand from coronavirus and its impact on tempering festivities.
By the latest count, the virus had killed 26 people and infected more than 880, with further cases suspected. China has extended to 12 cities, encompassing 36m people, a public transport shutdown aimed at containing the virus.
Not, it has to be said, that all prices in the soy complex were trading lower on Friday.
Soymeal for March, having on Tuesday surrendered the $300-a-short-ton mark, has rather than capitulating to further selling pressure found some resolve, edging 0.1% higher to $299.30 a short ton as of 09:45 UK time (03:45 Chicago time), looking for what would be a second successive positive session.
Some of its resolve is purely technical, in that spreading soymeal against the other soybean processing product, soyoil, is a popular investment strategy.
So when soyoil is tanking – as it is, shedding a further 0.5% to 32.33 cents a pound for March in early trading to take total losses this week to 3.1%, and for 2020 to 7.0% - soymeal tends to find some buying.
US vs Argentina
However, there is some fundamental cause for soymeal support too.
As ADM Investor Services flagged, “US soymeal prices are competitive versus Argentina”, which is the top exporter of the high-protein feed ingredient.
At Agrivisor, Karl Setzer said that “while the US may not see exports of whole soybeans in the near future, it could easily see elevated demand for soymeal.
“Many Argentine crushers are facing economic issues and are struggling to satisfy demand as production has been slowed or idled altogether.
Vicentin, which has buckled under $350m in debt, is the highest profile casualty.
‘Buyers have started to surface’
“As a result, buyers have started to surface for US meal, and surprisingly pushed our sales above Argentina in recent weeks,” Mr Setzer added.
“Even with higher values, we have seen buyers surface for US meal as the higher protein content compared to Argentina’s can negate the price differential.”
Data last week from industry group Nopa showed US soymeal exports last month at 902,534 short tons, up from 868,769 short tons in November and 826,404 short tons in December 2018.
The March futures contract also gained some technical kudos from, in the last session, tumbling to an eight-month low of $296.00 a short ton only to recover and close in positive territory.
As for Chicago soyoil, it remained under pressure largely thanks to rival palm oil, which stood 2.2% down at 2,862 ringgit a tonne in Kuala Lumpur, again, little helped by coronavirus and holidays in China, a major importer.
(Demand from the likes of China for the likes of palm oil tends to peak in advance of big holiday seasons, and can find some sluggishness during after immediately afterwards, depending on how significantly inventories are drained.)
The Kuala Lumpur market faces a long weekend too, with a Malaysian holiday on Monday, meaning three days without trading, and the potential for investors to withdraw, especially with the virus outbreak to worry about.
Soybeans themselves for March eased by 0.2% to $9.07 ½ a bushel in Chicago, also facing pressure from ideas of Brazil’s ongoing harvest proving a strong one.
ADM Investor Services, for instance, flagged “talk that early Brazil soybean harvest yields could suggest a record crop”.
US vs Brazil
This time, corn futures also fell, shedding 0.4% to $3.92 a bushel for March delivery, despite finding some support from Brazil, where an overenthusiastic 2019 export programme has drained stocks, and there are some worries over the safrinha crop (currently being planted) which has been hoped will rebuild inventories.
Benson Quinn Commodities, flagging “word South American corn values are rising”, said that “interior Brazilian feeder demand has pushed Brazilian equivalent corn numbers to $192 a tonne compared to $180 a tonne at the US Gulf”.
ADM Investor Services noted “talk that US corn export prices are cheaper than Argentina” too.
But is this translating into US export business?
Jitters ahead of US export sales data later, expected to come in at 500,000-950,000 tonnes for last week compared with 784,762 tonnes the week before, helped undermine corn futures, which for March shed 0.4% to $3.92 a bushel.
Betting on decent US corn export data has been a losing strategy so far in 2019-20.
Wheat export sales are expected at 300,000-700,000 tonnes, compared with 650,622 tonnes last time (and soybean sales at 600,000-1.10m tonnes, compared with 711,462 tonnes the previous week).
Not that investors were willing to stick their neck out and bet on positive data, with the Chicago soft red winter wheat contract for March standing down 0.8% at $5.76 a bushel.
US prices have already put in quite a spurt on hopes that higher values in Europe and the former Soviet Union will bring demand to the US.
CHS Hedging, flagging “ideas of tightening global supplies”, noted that “Australia struggles with crop losses from drought-like conditions, France wrestles with ongoing strikes and Russia proposed capping their wheat exports”.
ADM Investor Services added there have also been reports “that Argentina may have oversold the 2020 wheat supply”.
But will such forces bring trade to the US?