Morning markets: ag prices maintain downswing - for now

US markets may not have reopened after the July 4 holiday weekend

But the broadly downward trend in prices remained intact.

Rubber future in fact tumbled 4.2% to 203.00 yen a kilogramme in Tokyo, undermined in part by the reversal in oil prices from June highs, with crude the raw material for synthetic rubber.

There are also concerns over demand in China too, the top consumer of the tyre ingredient, accounting for more than one-third of world use, and which imported 2.47m tonnes of natural rubber last year.

China, as of Friday, had 149,047 tonnes of rubber in stock at warehouses monitored by the Shanghai exchange, a sizeable amount, if among the lowest in five months.

Ringgit strength

In Kuala Lumpur, palm oil dipped in and out of negative territory, standing down 1 ringgit at 2,401 ringgit a tonne as of 09:15 UK time (03:15 Chicago time).

Again, softness in crude is a negative factor, with biodiesel a large source of palm oil consumption.

Firmness in the ringgit is hardly helping either, making Malaysian exports such as palm oil that much less affordable for buyers in other currencies.

The currency on Friday touched its strongest since November against the dollar, of 3.1790 to $1.

China prices

As for the Chinese markets, these were hardly too encouraging either, with January soybeans down 0.6% at 4,311 yuan a tonne on the Dalian exchange, their weakest finish in nearly two months.

January soymeal ended down 1.5% at 3,299 yuan a tonne, its worst finish since mid-April.

Such moves will hardly reassure over Chinese soybean crushing margins, and demand from the top soybean importing country.

And some soft commodities fared even worse.

Sugar, of which China is also a large importer, slumped by 3.5% to settle at 4,784 yuan a tonne for January delivery, on the Zhengzhou exchange.

Data from the Chinese sugar association show sugar sales in major producing regions down 24% so far in 2013-14 (starting in October) to 7.9m tonnes, implying rich inventories.

Cotton, a major in which China is a particular focus, given a change in the farm subsidy regime, sank by 1.5% to 14,605 yuan a tonne on the Zhengzhou for January delivery, a contract closing low.

'Fears regarding quality'

Still, the news on markets is not all so negative.

Agritel highlighted the potential damage to advanced European cereal crops from a band of rains which, besides slowing combines, is threatening some quality downgrades.

"While rainfalls during the last two days can be considered beneficial for corn development," with corn spring sown and in its growth phase, "fears are reinforced regarding the quality aspects of other cereals", Agritel said.

Rain on ripe grain can encourage sprouting and protein depletion.

'Large differences in price'

"Precipitation is expected to last for several more days and abundant rain might harm [crops] particularly in Eastern Europe," Agritel said.

INTL FCStone has also raised concerns over Eastern European wheat quality, as highlighted by last week.

Meanwhile further west in France, Agritel warned that barley quality "might decline this week due to recent rainfalls".

Paris-based Agritel added: "Producers of durum wheat once more face quality concerns that might lead to large differences in price depending on the quality."

'Situation is most critical'

Further rain is certainly in the forecast for France, the top EU wheat producer, with MDA saying that "showers should build across eastern France and south eastern [European] areas this week".

There is some concern over wetness in Canada too, which is proving too extreme for some spring crops, if proving beneficial in some other areas.

"The current situation in Canada is most critical in certain regions," Agritel said.

"Fields are under water and spring plantings might suffer lasting damages, especially canola," as reported on Friday.

Still, on a more positive note for canola/rapeseed production, Strategie Grains raised its forecast for the EU rapeseed crop by 700,000 tonnes to 22.5m tonnes, although it has to be said that figure had been floating around in the market last week.

US weather outlook

Weather is particularly in focus in the US, and whether crops will remain under a largely benign influence (bar too much flooding in some areas) which has whetted expectations for a record soybean crop and potentially corn harvest too.

In fact, there has been little change in the US outlook over the weekend, according to MDA, with no sign of damaging heat which would threaten the sensitive corn pollination process, which is beginning to start in earnest.

In fact, for now, "the lack of notable heat in the Midwest Corn Belt will favour crop conditions", MDA said.

"Beneficial showers in the north east Midwest will increase moisture for corn and soybeans."

Still, as far as winter wheat goes, "showers in the far western Plains will slow winter wheat harvesting", the weather service said.

Hedge fund positioning

On the demand side, there are some signs of life at the current lower price levels, with Jordan on Monday tendering again for 100,000 tonnes of hard wheat, while Turkey has tendered for 235,000 tonnes of milling wheat and 200,000 tonnes of barley.

Turkey has suffered a particularly poor grains harvest, thanks to persistent drought.

On technicals, updated data on investor positioning showed hedge funds returning to reducing their net long position in agricultural commodities as of the week to last Tuesday, with corn and soybean holdings taking a particular hammering.

In soybean futures and options, the net long is now at its lowest since December 2011. Could hedge funds prove reluctant to sell down the position further?

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