China dispute overshadows markets

China was the theme of the week for the commodity markets. Whether it was the ongoing drama between the United States and China or the Huawei executive case in Canada, China had all the North American commodity markets on edge for the week ended Dec. 14.

As had been the case since the G20 meeting between U.S. President Donald Trump and Chinese President Xi Jinping, traders started the week waiting for China to buy U.S. soybeans. Wednesday, Dec. 12, the news broke; Reuters reported China had made its first major U.S. soybean purchase in more than six months. The next day the U.S. Department of Agriculture (USDA) confirmed the purchase.

However, the market didn’t jump in reaction. Supposedly, China didn’t buy as many soybeans as traders had expected. There is still uncertainty hanging over the market as traders are waiting for China to buy more. There are whisperings China could buy a lot more beans this year, however Brazil is still expecting a large crop, which could hold back purchases from the U.S.

In the canola market, traders were also watching Chinese soybean purchases, but the Huawei executive arrest case also had their attention. Canada arrested Huawei Chief Financial Officer Meng Wanzhou at the start of December on request of the U.S. and then granted her bail Dec. 12. China wasn’t impressed by the arrest and threatened retaliation for it.

Multiple Canadians have been detained in China. The business community is also concerned, as there have been calls out in China on social media to boycott Canadian brands. The agriculture industry is also concerned China could stop importing products, including Canadian canola.

The canola market is currently in wait and see mode when it comes to China. Developments on the trade war and Huawei case happen by the day and it is hard to predict just where canola will fall in all of this.

There is good news for the canola market though. A few months ago canola was regarded as over-priced, however crush margins have improved and canola is now thought to be more reasonably priced. Some are expecting this could see canola become more desirable to buyers and exports could pick up.

Throughout the week canola followed the lead of the U.S. soy complex down. A weaker Canadian dollar though provided some support for the market. The dollar has also been at the mercy of the Huawei case, as various Canadian stocks have dropped.

The week also saw the USDA release its monthly supply and demand report. The December report isn’t usually regarded as a market mover and this year’s report was no different. Brazil’s soybean production estimate was increased, which was a surprise to no one. U.S. soybean stocks were also increased, not a surprise either.

Chicago corn contracts traded in a narrow range throughout the week, lacking a true direction. On Friday, Dec. 14, it was corn’s turn to get some China news. Bloomberg reported China will start buying U.S. corn again as early as January. However, news out of China also showed the country had more corn on their hands than previously reported.

Wheat futures were a bright spot on the week with most contracts on the rise. Reduced global production once again was supportive for markets. Australia is nearing harvest and mature wheat crops there are getting hampered by rains. Reports of low protein are making their way out of the southern hemisphere country.

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