China has made a big concession in ag in a North America trade dispute.
But investors weren’t exactly acting as though they thought more breakthroughs were forthcoming.
Sure, China’s foreign ministry on Wednesday confirmed that the country had reopened to Canadian meat imports, blocked since June on allegations of bogus export certificates – although of course seen as retaliation for Canada’s arrest of Huawei finance director Meng Wanzhou.
The ministry said that Canada had addressed the safety concerns it had and devised a "rectification" plan.
But that didn’t, in early trading, spill over into broader markets as a signal that further agreements in trade disputes with China, including by the US, could be imminent.
Sure, China’s renminbi, something of a barometer of US-China relations, stood 0.2% stronger to cross back below the psychologically important 7 renminbi per $1 mark.
However, it has yet to test the last session’s high.
And stockmarkets were hardly exuberant, with Hong Kong shares ending up all of 0.02%, while Shanghai ones lost 0.4%.
Tokyo stocks ended 0.2% higher, the level of headway shown by Frankfurt shares in early trading too.
‘Might matter directly for canola’
In ag markets, canola might have been expected to be a notable gainer from the improved Beijing-Ottawa relations, with Canada’s exports of the oilseed to China (usually the top buyer) also on ice since the Meng arrest.
China alleges that inspectors found pests in some imports of Canadian canola.
“The apparent thaw in Canada’s trade relationship with China might also matter directly for canola,” said Tobin Gorey at Commonwealth Bank of Australia.
However, Winnipeg canola for January stood up only 0.1% at Can$462.40 a tonne as of 09:45 UK time (03:45 Chicago time), just above its 40-day moving average.
‘Protein hungry right now’
Cynics might say that China, amid an African swine fever crisis which has resulted in hefty pig herd cuts, has far more incentive to purchase meat than canola – used in part for making canola meal, a livestock feed ingredient.
“China’s problem with African swine flu means it is protein hungry right now so (re)opening its borders to more source beef and pork is unsurprising,” Mr Gorey said.
Still, “the extra pork sales will help absorb some canola meal in Canada”, in implying extra need for pigs.
Bulls in canola, an oil-heavy oilseed, might also look to palm oil for further support, with the vegetable oil up 1.4% at 2,550 ringgit a tonne, rediscovering positive territory after a dip in the last session blamed on profit-taking.
As for the Chicago ags, they appeared in a somewhat sluggish mood, focused more on the prospect on Friday of a US Department of Agriculture Wasde briefing seen as unlikely to provide the supportive data which had been hoped for, and seemed likely a few weeks ago.
“As the market prepares for Friday’s USDA report, it doesn’t seem too excited about it,” said Mike Mawdsley at First Choice Commodities.
In fact, the Wasde is expected to reduce the forecast for the US corn yield this year by 0.9 bushels per acre to 167.5 bushels per acre, and for the soybean yield by 0.3 bushels per acre to 46.6 bushels per acre, according to a Reuters poll.
However, forecasts from IEG Vantage and INTL FCStone have raised doubts about those downgrades.
And even if they do come through, there are concerns demand setbacks will offset them, raising doubts over downgrades to Wasde end-2019-20 stocks forecast by the Reuters poll, of 112m bushels to 1.817bn bushels for corn, and 32m bushels to 428m bushels for soybeans.
‘Not enough to turn the dial’
“Estimates related to yields on Friday’s Wasde report indicate the trade isn’t looking for any numbers that are going to turn the dial in a supportive nature,” said Benson Quinn Commodities.
The broker said it didn’t believe the expected yield downgrades for either corn soybeans “would be low enough to push corn or bean prices back through their October highs”.
Meanwhile, “lower production can be offset by lower demand.
“This is especially the case in corn,” in which US exports have been notable weak so far in 2019-20.
‘Historically high basis’
CHS Hedging noted too the prospect of “mostly favourable harvest weather across much of the US Midwest for this and next week”.
Although Chicago corn futures for December did manage headway, of 0.2% to $3.82 ½ a bushel, that failed even to recover the losses of the last session, and left the contract remaining below its 40-day moving average.
Still, the market is getting some support from a firm US cash market, provoking ideas of a price floor around current levels, with ADM Investor Services saying that “US domestic cash basis levels continue to be historically high for this time of the year.
“This is linked to slow harvest and farmer selling. Some feel US farmers wants at least $0.40 a bushel more for his corn.”
Soybean futures for January eased by 0.2% to $9.32 ¼ a bushel, felling pressure too from decent weather forecasts for South America, where soybean sowings are in progress.
(Soybean area in Argentina may also be larger than had been expected, given ideas that export tax fears will provoke farmers to cut corn area, with Dr Michael Cordonnier earlier this week lowering his 2019-20 Argentine corn harvest forecast by 1m tonnes to 49m tonnes for that reason.)
“South American forecasts continue to lean favourable” in production terms, said Benson Quinn Commodities.
“For the next couple of weeks, much of Brazil expects to see seasonal precipitation with totals ranging from an inch to two and half.”
“Weather leans negative” in price terms, said Richard Feltes at RJ O’Brien.
Black Sea prices
Chicago wheat futures for December also showed a marginal decline, of 0.1% to $5.15 a bushel for December.
There appeared mixed ideas of the implications of the result of Egypt’s tender on Tuesday.
“Most important of all, Black Sea spot prices were market a dollar lower” per tonne, said CBA’s Tobin Gorey.
“The Black Sea is thus showing some signs of responding to competition in the region. And that suggests this phase of wheat’s rally might have come to an end for now.”
However, others viewed a decline of $1 a tonne as being within the range of expectations, especially after a decline of that level was flagged by SovEcon in its latest weekly Black Sea market report.
Agritel also noted that while the tender “confirms the good competitiveness of French wheat”, only a limited volume was actually offered, despite a huge exportable surplus.
“We can observe insufficient volumes proposed for the tender, in a context of high exportable availability on this campaign.”