Markets began the new week, and the new Chinese year, where they left off the last - in risk-off mode, as coronavirus continues to spread.
The number of people killed in China by the coronavirus has risen to 81, with approaching 3,000 confirmed ill.
While markets in China itself were closed for the new year holidays - which have been extended until next Sunday by Beijing in their effort to contain the virus – trade elsewhere betrayed the mounting fears over what the outbreak could mean for economic growth in the country, and elsewhere.
On share markets, Tokyo’s Nikkei index closed down 2.0%, with Frankfurt and London shares down 1.3% in early deals.
Brent crude tumbled by 3.0% to $58.88 a barrel, taking 2020 losses to 10.6%. (The safe haven of gold, by contrast, added 0.7% to $1,581.44 per ounce.)
And ags also suffered their fair share of selling.
“US [ag] markets are falling sharply this morning as operators are fearing a major economic slowdown,” said Agritel.
“The coronavirus outbreak is also reinforcing the fears to see a fall of global demand.”
Cotton, for instance – a crop for which China is the top consumer and importer, and which as an industrial commodity is seen as particularly vulnerable to economic considerations – fell for March by 1.0% to 68.71 cents a pound in New York as of 10:00 UK time (04:00 Chicago time).
This despite some decent weekly US export sales data as released on Friday.
US vs Ukraine
In Chicago, corn futures for March tumbled by 1.5% to $3.81 ½ a bushel, again despite decent US export sales data on Friday, although it should be said that a debate remains about the quality of US supplies for sale.
At Agritel, Karl Sertzer said that “we have known since harvest began there were issues with US corn quality this year, and now these are surfacing in the export market.
“Buyers have reportedly passed on US offerings in favour of those from Ukraine as even though price is higher, the quality is better.
That said, at Futures International, Terry Reilly reported that “despite widespread talk of US corn quality problems, US Pacific North West exporters are still able to reach number 3 yellow corn minimum requirements”, although he added that “it’s difficult to fulfil number 2 supplies”.
US vs Australia
Wheat in Chicago fell by 1.6% to $5.64 ¼ a bushel for March delivery, falling below its 20-day moving average for the first time in six weeks.
This despite briefings showing further gains in prices in Russia, the top exporter, where shipments with 12.5% protein loaded in Black Sea ports were selling for $231 a tonne as of the end of last week, up $5 a tonne week on week, according to SovEcon.
Ikar put the wheat price at $232 a tonne, up $7 a tonne for the week on its dataset.
However, the market had factored in hope of Chinese purchases of US wheat, leaving the market vulnerable to coronavirus worries.
Meanwhile, talk remains of China actually buying wheat from Australia instead.
“China bought Australian wheat, not unusual for this time of year, but the amount could be as high as 500,000 tonnes, unusual after Australia battled its third consecutive year of drought that drove exportable wheat prices above the global level,” said Terry Reilly at Futures International.
‘Traders are losing patience’
Chicago soybean futures for March dropped 1.1% to $8.92 ½ a bushel, taking 2020 losses to 6.6%.
This despite, of course, the signing of the phase one China-US trade deal two weeks ago.
“Traders are losing patience over the lack of Chinese purchases despite the trade deal signed in the middle of the month,” said Agritel.
However, amid the virus outbreak, and holiday period, “nobody in China is thinking about buying soybeans, or much of anything else at the moment”, Benson Quinn Commodities said.
In fact, the “new year festival in China, once thought to spark a renewed demand cycle, looks more likely to usher in a less-than-exuberant period”.
‘Fabulous export sales’
As an extra setback for bulls, “in Brazil, the soybean harvest is progressing with high yields”.
Still, South America is also providing a positive for the soy complex too, in terms of a squeeze on the Argentine crush from the troubles at Vicentin, the processing giant which sold $3.2bn worth of soy products in fiscal 2019.
This factor has been seen as a primary driver from the mega 641,900 tonnes of soymeal exports sold by the US in the latest weekly export sales report, as released on Friday, with the Philippines, Mexico, Germany and Spain among major buyers.
For soyoil, the other main processing product, sales were a decent 55,600 tonnes.
“Weekly export sales showed fabulous soymeal and soyoil sales,” Benson Quinn Commodities said, noting that “Argentine bean crushers continue to struggle, unable to keep up with demand, with more EU meal business now pointed at US supplies”.
Meal vs oil
Futures International’s Terry Reilly said that “bottom line‐impressive meal sales suggest Argentina is currently knocked out of the market”.
He added that “we like owning meal over oil”, with the meal-oil spread in fact much traded.
“Over the longer term we are bullish soyoil but need to see some geopolitical indifferences to resolve (India) and demand to recover before reversing our bearish short term position.”
Soyoil futures for March in fact slumped by 2.8% to 31.13 cents a pound, while soymeal ones dropped 0.5% to $296.70 a short ton.
Soyoil futures are far more prone to profit-taking, after their late 2019 run-up, but are now down 10.5% for 2020.