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Morning markets: ag futures revive, helped by weaker shares

One of the solaces for grain bulls in the last session, when prices ended lower, was that at least there was some recovery from intraday lows.

That was especially true in corn, which for May recovered from $4.94 a bushel at one point to close at $5.01 a bushel, down only 1 cent on the day.

"All in all, you have to be impressed with the performance of the corn market on Thursday after recovering from early losses and gathering support into the close," Benson Quinn Commodities said.

The broker also highlighted the potential for external markets to be influencing revival in agricultural commodities.

"It's worth noting, the recovery in the ag markets gained strength as equity indices sold off."

Shares dip

Shares performed weakly on Friday too, falling 2.4% in Tokyo, where they hit a six-month low, but 1.0% in Sydney and by 0.8% in Hong Kong.

In Europe, stocks opened 1% down in London, Frankfurt and Paris, in a decline blamed on weak data from China the latest being statistics showing a 0.5% drop in consumer prices last month.

Another factor behind the recent pullback in shares is nerves ahead of US company results, with JP Morgan Chase and Wells Fargo among corporates reporting on Friday.

Whatever, weakness in shares has tended this year to encourage agricultural commodity investors.

Palm eases

Palm oil, for instance, was trading 0.2% higher at 2,63 ringgit a tonne in Kuala Lumpur a of 10:20 UK time (04:20 Chicago time), despite Thursday's data showing a surprise rise in Malaysian stocks of the vegetable oil, and again showing a sharp recovery from intraday lows.

Chicago corn was 0.4% higher at $5.03 a bushel in Chicago for May delivery, continuing to feel some of the momentum from the last session, and with cold weather still a worry ahead of the US planting season, if not yet a mega worry.

Often in weather markets, futures prove reluctant to move too far on a Friday, or see profit-taking, for fear of what the change in forecast might bring over the weekend, without the ability to trade.

'Unjustified' upgrade

Currently, the forecast is for Midwest rains which are something of a mixed blessing.

"Abundant rains in western areas should replenish moisture, but rains in southern areas will stall fieldwork," weather service MDA said.

Also in the mix in corn is a tender by South Korea for 70,000 tonnes of corn, as well as 70,000 tonnes of feed wheat, the results of which should be revealed today.

And US exports, while performing OK, with latest weekly old crop US sales at 658,700 tonnes, do have something to live up to after the US Department of Agriculture on Thursday raised by 125m bushels, to 1.75bn bushels, its forecast for exports in 2013-14.

Macquarie became the latest to question this figure, calling it "unjustified", and viewing as "highly unlikely" the 5.0m-tonne import estimate for China, a forecast which has also concerned many other commentators.

Egyptian tender

Corn's resilience helped wheat too, which added 0.25 cents to $6.62 a bushel in Chicago for May delivery, attempting its first positive session in three.

The market had the support of a surprise tender by the Gasc grains authority in Egypt, the world's top importer of the grain, of which the results will be unveiled later.

The tender was revealed only hours after Egypt's supplies minister, Khaled Hanafi, revealed that the country, which is attempting to reduce its reliance on imports, had set aside about 10bn Egyptian pounds ($1.4bn) to buy wheat from local farmers.

This helped counter some of the negative talk coming from the US weather outlook, with improved rain prospects for the parched southern Plains, although it has to be said that weather models, and interpretations of them, differ.

Rain hopes

"Improved rain prospects across the US hard red winter wheat belt over the next 10 days could, according to some models, measurably trim areas currently under stress," said Richard Feltes at RJ O'Brien.

However, at Texas A&M University, Mark Welch said that while "the precipitation forecast for the next 5-to-7 days calls for beneficial amounts in eastern Kansas, most other areas are missing out again".

This after "most of the hard red winter wheat production area has seen precipitation levels well below normal over the last 30 days".

Interestingly, in Australia, while drought has retreated in eastern areas, which are in focus because they are prone to undue dryness during El Nino periods, Western Australia, the country's top grain-growing state, has reemerged as under threat.

"Dryness is rebuilding in Western Australia, "MDA said, adding that "drier weather through the next 10 days will allow dryness to build further".

Chinese defaults

Soybeans, however, kept on the downward path, falling 0.4% to $14.77 a bushel for May, amid continued concerns over the talk of Chinese defaults on import orders.

"Unable to get a letter of credit, Chinese crushers defaulted on at least 500,000 tonnes of US and South American shipments due to poor crush margins," CHS Hedging said, summing up market thinking.

"China processors are losing an estimated $80-100 per tonne processing soybeans."

Another broker said: "Rumour has it that China has cancelled roughly 500,000 tonnes of beans from Brazil and are trying to cancel another 1m-1.5m."

Brazil competition

Still, it also has to be pointed out that Chinese buyers have only 262,800 tonnes of orders of US soybeans left to fulfil, having already taken receipt of 27.4m tonnes in 2013-14 (which started in September).

That speaks of only a limited direct effect on US soybean prices, although there could be an indirect one, in terms of washed out orders from Brazil being put on to the world market, so pressing on prices, or even being shipped to the US itself.

In fact, the Brazilian soybean export basis is already trading some $0.50 a bushel below Chicago July futures, a level "which is $0.30 below normal", according to RJ O'Brien's Richard Feltes.

And the USDA is, after all, forecasting record US soybean imports of 65m bushels in 2013-14.

Resilient cocoa

Soft commodities also had something of a mixed feel early on, with arabica coffee, which has been firm this week on Brazil dryness concerns, retreating on end-of-week profit taking by 0.8% to 204.40 cents a pound for May delivery, falling from a two-year high close to the last session.

The better-traded July contract dropped 0.8% to 206.70 cents a pound.

But cocoa for July added 0.2% to $2,991 a tonne in New York, and the same to £1,873 a tonne in London, continuing to shrug off Thursday's soft European cocoa grind data, showing a 0.4% rise in the first three months of the year rather than the 3% growth expected.

Still, that was "a difference of 8,840 tonnes in real terms," said Eric Sivry, Head of agri options brokerage, at Marex Spectron terming it "not exactly a gigantic tonnage in the grand scheme of things.

'The big question'

He added that "it feels as if US grinds [data] next week may not be much better".

But is this just down to more processing being undertaken at origin, rather than in the Western consumption countries?

"The big question really is, what will the West African and Asian grinds look like? They should be much better than the other two if one believes in the Nielsen chocolate projections.

"All in all, we fear that first quarter grinds in isolation may have zero impact on the market."

Evening markets: bearish data, weather take toll on ags
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