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Morning markets: Wheat and beans rally as corn slides - but has China blinked in trade dispute?

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Wheat found some strength as corn lost further ground in Wednesdays trading. But the day was overshadowed by an early sign of China backing down in its long running trade dispute with the US.

 

After the longstanding stalemate in the US - China trade dispute, the news that the Hong Kong government has withdrawn the controversial extradition legislation behind the recent civil unrest there has been seized upon by markets as a sign of a thaw.

 

“China blinking in Hong Kong is important in an immediate sense for the global economy,” observed Commonwealth Bank of Australia’s Tobin Gorey. ”It might even prove to be a pivotal moment in a long‑term sense too. Had China taken stern or worse action in Hong Kong, then any hope of resolution of the US‑China trade dispute in the near future would have evaporated. And, in turn, frozen the dispute in a place poisonous to the global economy.”

 

Mr Gorey added that China’s move hastened the US dollar’s “retreat against the other agri‑exporter currencies” on Wednesday, as the currency lost some of its ‘safe haven status’ on the news from Hon Kong.

 

Wheat rebounds

 

A sharp rebound in Chicago Board of Trade (CBOT) wheat values US ended the downward trend seen since last week. The CBOT September wheat contract gained nearly 9 cents or 1.96% to close at $4.56/bu on Wednesday, while the December position was 2.32% higher at $4.67/bu.

Early Thursday business saw the September contract trading at $4.56½/bu.

 

In Europe, September Euronext wheat lost 1.89% on the day to finish at €158.71/tonne while the December contract gained 0.17% to close at €166.25/tonne.

 

European analyst Agritel commented that last week’s fall in the December 2019 contract to values approaching those last seen in May is making it more attractive, with buying interest starting to support prices. There is also some short-term market pressure with the delayed US spring wheat harvest compared to previous years. THE USDA estimates that the US spring wheat harvest is 55% complete (38% last week) compared to 86% in 2018 and 78% on average.

 

Turning to Europe, Agritel said the latest downturn in the September contract reflects its approaching close next week, while the small increase for December shows the contract is trying to stabilise around €166/tonne now there is a clearer picture of Northern hemisphere production for 2019 and southern hemisphere crop potential.

 

But the strengthening of the Euro against the dollar, with reports of growing political stability in Italy, will make EU wheat exports less attractive - although the exchange ratio is still historically low.

 

“Wheat prices bounced around the world, as consumers took advantage of seasonal lows,” added CRM Commodities.

 

Corn continues to fall

 

The Chicago September corn lost 4c or 1.14% to close $345¾/bu Wednesday, with December 0.69% lower at $3.58½/bu. The September contract opened Thursday at $3.46/bu.

 

Euronext maize was unchanged at €161.25/tonne for November and €166.50/tonne for January 2020.

 

The latest US corn crop ratings lifted the Good to Excellent rating by 1% to 58%, but autumn weather continues to be a concern with the harvest running some two weeks late in the Midwest after the late planting in spring.

 

“Corn is still evolving downwards on new lows,” noted Agritel. While the late developing crop might be expected to suffer from frosts at this stage, there are no signs of this, and so the harvest yields could yet be higher than the August WASDE estimate of 169.5 bu/acre. This will not support values.

 

But the Chicago-based brokerage Allendale has predicted a 2019 US corn yield of 167.71bu/ac based on a second half of August crop survey.

 

“Corn futures prices fell again and fell,” added Tobin Gorey at CBA. “And so the Chicago December ’19 also closed at new season lows.” While this trend is expected as the US corn harvest gets underway, he noted the market “remains more open than normal to a later trough, given that US crops are behind schedule”.

 

Mixed trading for soybeans

 

US soybeans were mixed – the nearby September contract lost 0.32% over Wednesday to close $8.53¾/bu, while the November contract gained 0.17% at $8.70/bu. The September position was trading at $8.62½/bu early Thursday.

 

The Euronext oilseed rape contracts gained on Wednesday – the November contract closed up 0.65% to €383.25/tonne and the February 2020 position by 0.8% to €384.00/tonne.

 

Agritel notes the US November values were helped by new export sales data from the USDA yesterday, but expects market resistance at the $8.8/bu level. Meanwhile, the Euronext November contract has reached a new high, responding to tightening EU rapeseed supplies.

 

The USDA has rated 55% of the US soybean crop as good to excellent, unchanged from last week, but behind the comparative 66% at the same stage of 2018.

 

“Canola and soybean prices made modest gains – the action remains elsewhere, in the grains,” noted Mr Gorey.

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