PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 09:35 GMT, Wednesday, 7th May 2014, by
Morning markets: ag futures ease, infected by broad weakness

Wednesday was a tricky one for many markets.

Tokyo shares returned to trading with something of a hangover, after a four day weekend. The Nikkei 225 index tumbled 2.9%, after Bank of Japan minutes cautioned over a pick-up in domestic wage inflation.

And that cast a bit of a pall over other stockmarkets.

Shares dropped 1.2% in Hong Kong, and opened lower in Europe too, by 0.4% in London and 0.5% in Frankfurt.

'Adverse weather conditions'

And the negative mood spread elsewhere too, with rubber, for instance, tumbling 4.7% to 197.50 yen a kilogramme in Tokyo, very nearly the lowest for a benchmark contract since September 2009, amid lingering concerns over Thai plans to sell 220,000 tonnes of the tyre ingredient from its stocks.

Rubber's fellow industrial crop, cotton, eased also, if by only 0.04 cents to 93.94 cents a pound in New York for July delivery as of 09:30 UK time (03:30 Chicago time), and remaining within sight of two-year highs for a nearest-but-one contract.

Chinese subsidy reforms prompted a 25% fall in the country's cotton imports from India, according to Indian industry sources, cotton which will need to find a new home, potentially weighing on prices.

Still, on the most supportive side for prices, "adverse weather conditions in Texas", the top US cotton producing state, "will continue and there is little chance of rain over the next 10 days", Sterling Smith at Citigroup said.

'Very little relief expected'

The weather in the US southern Plains is being most closely watched, of course, for its potential impact on wheat output.

But, the downbeat market mood took a toll on the rally in the grain too, even though the outlook is hardly too promising for region and its drought-hit hard red winter wheat crop.

"Rain activity will increase later in the week, but favours eastern hard red winter growing regions," said Brian Henry at Benson Quinn Commodities.

"Very little relief is expected in central and western regions."

CHS Hedging noted that "crop ratings for hard red winter wheat", the type grown in the southern Plains, "are at the near record lows dating back into the mid-1980s".

'US wheat uncompetitive'

Still, CHS also noted that "US wheat remains uncompetitive in world export markets after the recent futures rally", and will have got even more so since losing out in the tender by Egypt's Gasc grain authority last week.

Other wheat markets have, signally, failed to keep up with US ones, with conditions in the likes of Australia, Europe and the former Soviet Union throwing up some dryness worries, but nothing like on the scale of the southern Plains.

Luke Mathews at Commonwealth Bank of Australia said: "Interestingly enough, European markets remain relatively subdued, despite the Ukraine situation," another major prop to wheat prices, thanks to the country's large exports, and on Europe's doorstep too.

The divergence in performances signals "that the primary driver of price action is the US-centric hard red winter wheat crop issue", he said.

In fact, US hard red winter wheat fell 0.5% to $8.41 a bushel, while Chicago soft red winter wheat for July was down 0.4% at $7.35 a bushel.

'Factors affecting the market are bullish'

But will the correction last?

"We see that wheat prices are moving lower today but that is most likely due to profit-taking as factors affecting the wheat market are bullish," Vanessa Tan at Phillip Futures said.

Benson Quinn Commodities's Brian Henry said: "Charts indicate the path of least resistance is still higher, but continues to push into overbought territory.

"Outside of some profit-taking the speculator isn't showing any interest in selling these markets unless the technicals fail."

Spring vs winter

Interestingly, Minneapolis hard red spring wheat held its round, at $8.04 a bushel for July delivery, amid some uptick in concerns over sowings, with just 26% completed as of Sunday, compared with 41% normal by that time of year, according to US Department of Agriculture data.

Unlike winter wheat, too much rain is the problem here, and, with the forecast remaining wet, "little planting progress is expected this week", Mr Henry said - if noting that last year, "Canada made very little progress before May 10th and re-wrote the record books" on production.

Still, Richard Feltes at RJ O'Brien clocked a seasonal tendency for Minneapolis wheat to gain on Kansas City hard red winter wheat from mid-May to late June.

"Historically, hard red spring wheat seldom trades at a discount to hard red winter wheat," Mr Feltes said.

"The bottom line is that the steep premium of hard red spring wheat over hard red winter wheat is vulnerable to a sharp correction once Kansas City wheat is unable to advance further."

This could occur "either on speculative exhaustion, unexpected southern Plains rains, above-average hard red winter wheat harvest sales due high prices, or a marked shift in bread quality wheat demand from hard red winter wheat to hard red spring".

Corn eases

With wheat stalling, corn struggled to hold on upward momentum, with many investors dubious about just how serious, in terms of yield prospects, a slow start to US spring plantings it.

"Planting continues to progress nicely, even in some of the wetter northern areas," CHS Hedging said, adding that "rains later this week will be fine with many, as some will wrap up corn planting by then".

Still, investors were reluctant to remove too much from the price, with corn already at a large discount to rival grain wheat, and not all analysts quite so blasé about farmers having 29% of corn in the ground as of Sunday.

This figure "pales to the figure of 42%", Phillip Futures' Vanessa Tan said.

Price direction later may depend on weekly US ethanol production data, which a week ago revealed a drop in output to 898,000 barrels a day and stocks recovered to 17.2m barrels.

Corn for July was 0.1% lower at $5.16 a bushel.

China speculation

Soybeans were lower too, continuing to be infected by weakness stemming from China, where the ministry of commerce has cut short-term import forecasts for the oilseed, and there are fresh rumours over sales from state inventories.

This talk emerged last month, only to quickly disappear, but has re-emerged with a vengeance, with the speculation specifically of ales of 3m tonnes of soybeans, with a late-May start date to the sell-down.

On China's Dalian exchange, soybeans for September settled down a further 1.1% at 4,418 yuan a tonne, on top of the 1.2% loss in the previous session.

Chicago soybeans for July were 0.4% lower at $14.53 a bushel.

At least, elsewhere in the oilseeds complex, palm oil managed a small gain, up 1 ringgit a t 2,569 ringgit a tonne, showing signs of stabilising around three-month lows.

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