The overarching markets narrative was one of concern over the China coronavirus.
The quarantining by authorities of the city of Wuhan, the centre of the virus outbreak, appears to have renewed market jitters over the disease (if being seen as a sensible measure to prevent further spread of a disease which has killed 17 people and infected nearly 600 in China, with cases confirmed in the likes of Thailand, South Korea and the US too).
Shanghai shares tumbled 2.8%, and Hong Kong ones by 1.5% while Japan’s Nikkei closed down 1.0% and European stockmarkets opened lower on Thursday too.
Brent crude traded 1.3% down at $62.37 a barrel, hitting its lowest levels since early December, while on currency markets, China’s renminbi lost 0.4% against the dollar to take its decline this week above 1.0%.
And among ags, contracts particularly exposed to China suffered too.
Cotton futures for March shed 0.9% to 70.47 cents a pound in New York as of 09:45 UK time (03:45 Chicago time), reversing some of its gains of the last session which had left the contract at a level which is becoming something of a price ceiling, even after the sealing of the phase one China-US trade agreement.
Tobin Gorey at Commonwealth Bank of Australia spoke of prices being at levels “around about where the trade deal gains have repeatedly stalled”.
Louis Rose at Rose Commodity Group termed as “supportive factors… the signing of the Phase One US-China trade accord and the Senate’s passage of the USMCA (United States, Mexico, Canada) trade pact”.
However, he added that “it should be kept in mind that [2019-20] carryout projections for the US and the aggregate world of 5.4m and 79.59m bales, respectively, are not out-and-out bullish”.
‘Causing the market some angst’
In Chicago, it was soybeans which lagged, with the March contract standing down 0.3% at $9.11 a bushel, setting a six-week low, with disappointment anyway that the trade deal has not spurred a wave of Chinese buying of US crop.
“The murkiness of US-China trade deal’s commitments seems to be causing the market some angst. As is the lack of evident buying from China,” said CBA’s Tobin Gorey.
Furthermore, the market is under pressure from the start of a Brazilian harvest which is expected to prove large (albeit with some debate as to exactly how large).
Agritel said that “the yields are higher than last year, and beyond expectations on Mato Grosso.
“If these figures are confirmed in other states, production could reach 125m tonnes, compared to 119m tonnes last year, a new record.”
‘Asian buyers covered’
Karl Setzer at Agrivisor said that “soybean harvest is underway in Brazil and yields are coming in much better than expected to start.
“As the Brazilian harvest ramps up, so will the pressure on the global soybean market.
“Asian buyers are reportedly covered on needs for the next several weeks and will wait to see how far futures set-back before extending coverage.”
However, Planalytics has trimmed its Brazil soybean yield forecast to 3.31 tonnes per hectare from 3.34 tonnes per hectare, and there is some concern over persistent harvest-time rains.
“The forecast for the next couple of weeks notes some excessive moisture in Brazil,” said Benson Quinn Commodities, adding that “if this were a trend, it could be an issue for beans”.
Soyoil weighed on soybeans by dipping 1.2% to 32.64 cents a pound in Chicago for March, trading back below its 50-day moving average, weighed in turn by a stumble by rival vegetable oil palm oil, which dipped 1.4% to 2,933 ringgit a tonne in Kuala Lumpur.
Palm’s decline was blamed on fresh concerns over relations between top importer India and second-ranked exporter Malaysia, despite an apparent commitment by the latter to buy more sugar from the former in a drive to repair the countries’ trade relations.
(These had been damaged by criticism by Malaysia’s prime minister of India’s Kashmir policy.)
Prices in China actually proved buoyant on the day, with Dalian palm oil futures for May rebounding 2.1% to close at 6,201 yuan a tonne, although Dalian May soyoil added a more modest 0.5% to 6,494 yuan a tonne.
‘Could limit the planting window’
But back in Chicago, corn managed some headway, adding 0.1% to $3.89 ¼ a bushel for March, gaining support from nascent worries that Brazil’s soybean harvest, while large, is proving slow, so potentially constraining sowings of follow-on safrinha corn.
In the soybean harvest, “just as much interest is on pace” as yield, Mr Setzer said, “as progress is behind normal, which could limit the window for the planting of the safrinha crop”.
Brazil’s safrinha corn crop accounts for most of the country’s production, and is seen as particularly important this time, after a strong 2019 export programme drained the country’s inventories of the grain.
‘Increasingly tense situation’
Corn was also helped by rival wheat, which resumed upward progress, gaining 0.5% to $5.80 ½ a bushel in Chicago for March delivery, albeit recovering only a portion of the losses of the last session.
Agritel highlighted the continued threat to French exports from industrial action, saying that “the situation at ports continues to deteriorate, with the dockworkers’ strike,” prompting an “increasingly tense situation, in particular, regarding fulfilment of export contract obligations”.
ADM Investor Services said that “talk that China could buy US wheat in the new trade deal with US and talk of slower Russia wheat export pace has helped March Chicago wheat futures rally”.
However, the broker added that “it may need new US export demand or lower 2020 world supplies to push nearby Chicago wheat futures over $6.00 a bushel”.