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Morning markets: corn and palm oil drop on big ag data day

Asian share markets ignored last night's record high close by Wall Street stocks, with equities dropping 0.3% in Tokyo and showing small losses in the likes of Hong Kong and Shanghai too.

And agricultural commodities did too.

Back above 80

Cotton which as an industrial commodity tends to move more in line with broader sentiment than food crops, managed only a 0.1% gain to 80.41 cents a pound for March delivery.

Still, this solidified the fibre's place back above 80 cents a pound, among its highest levels in more than a month.

And the rise defied news that China is clamping down further on the practice by unscrupulous companies of selling cheap imported cotton into a state stockpiling programme aimed at supporting domestic farmers.

(This is a generous subsidy programme, offering 20,400 yuan ($3,360) a tonne, equivalent to about 150 cents a pound. So generous, indeed, that it is viewed as having put a floor under international cotton prices.)

On the bullish side, US cotton stocks are back on the downswing, falling to 91,141 bales as of last night, down more than 3,000 bales on the day.

Palm stocks rise

And upward movement was a struggle in Chicago too.

After all, for many agricultural commodities, there are big price influences to come on a day which is a big one for data, so injecting an air of uncertainty for now.

In fact, the slew of statistics has already begun for palm oil, with the Malaysian Palm Oil Board revealing that Malaysian stock of the vegetable oil rose by 7.2% month on month in November to 1.98m tonnes, as a decline in exports outpaced a seasonal fall in production.

The inventory figure was, though, somewhat anticipated, limiting to 0.4%, to 2,635 ringgit a tonne, the loss in Kuala Lumpur futures as of 09:35 UK time (03:35 Chicago time).

Data later

For the big grains and oilseeds, the day brings crop estimates from Conab, the ag bureau in Brazil, the top exporting country for soybeans, as well as of the likes of arabica coffee and sugar.

It will also see the US Department of Agriculture's final benchmark Wasde crop report of the year.

In fact, December Wasdes are not the most important of the series, in failing to update US crop production figures.

But today's Wasde being keenly anticipated nonetheless for estimates for South American production of corn and soybeans, and of US demand of the two row crops plus wheat too.

If this year has been marked by record US corn production, and a strong soybean harvest too, it is also notable for a pick-up in demand now that supplies are more freely available.

'Can't afford to continue selling soybeans'

This is particularly so in soybeans, for which the US has, three months into 2013-14, sold 95% of the exports expected for the whole season.

"The expectation of soybean demand shifting to South America hasn't happened to a degree the trade feels comfortable with, which has offered enough technical support to trigger additional fund buying," Benson Quinn Commodities said.

Another broker said: "The point is we can't afford to continue selling soybeans at this rate without higher price rationing coming into play.

"There is no doubt that the record amount of South American acres should replenish world stocks, but it will take some time for production and distribution to affect prices."

The Wasde is expected, in raising the estimate for US exports, to reduce the figure for soybean stocks at the close of 2013-14 by 17m bushels to 153m bushels.

Still, soybeans for January eased 0.2% to $13.41 a bushel, as some investors took the cautious option and took profits ahead of the report.

'Small downward revision'

For corn, the Wasde is expected to raise the US export estimate too, with more than 70% of total shipments for 2013-14 already sold.

On actual exports, data on Monday showed US scorn shipments last week at 40.2m bushels, well ahead of the 27.3m bushels a week need to meet the USDA target.

Hence the expectation of a cut of 16m bushels in the briefing in the estimate for US corn stocks at the close of 2013-14.

"Overall, a very small downward revision to US corn carryout is expected, based on expectations for slightly stronger disposal," Luke Mathews at Commonwealth Bank of Australia said.

'Positive technicals'

Nonetheless, with stocks still expected to end the season at a very comfortable 1.871bn bushels, the investors were not so keen to clamour aboard with more long positions.

Quite the opposite.

Chicago's March lot fell 0.7% to $4.34 a bushel, although that left it above its 20-day moving average, which the contract is enjoying its longest spell above since August.

"On the technical front the market maintains a positive outlook near term with the March contract still holding its 20-day moving average," Benson Quinn Commodities said.

'Prayers are needed'

For wheat, the Wasde is expected to cut the US stocks forecast too for end 2013-14, by 25m bushels to 540m bushels, after a decent first half of 2013-14 for exports.

However, the technical signals are not so good.

"Charts look good for soybeans, bottoming in corn, but prayers are needed for wheat," Mike Mawdsley at Market 1 said.

CBA's Luke Mathews noted that "a break of the $6.50-a-bushel support" for Chicago's March contract "would open up the possibility of more significant losses toward the $6.00-a-bushel mark".

Brazilian purchases?

However, the grain actually did best of Chicago's big three in early deals, easing a modest 0.1% to $6.50 a bushel for March, if only lagging on the downside because of the technical floor at this level.

Furthermore, with prices having underperformed in recent sessions, profit-taking on long positions looks less appealing.

And there are the worries of winterkill damage from the US cold snap, and talk of Brazil returning to snap up fresh supplies, with two cargoes of hard red winter wheat for February delivery purchased, according to the rumour mill.

That said, US wheat faces extra competition, given the huge harvest in Canada, from where Japan bought 111,173 tonnes of milling wheat on Tuesday.

Hard red winter wheat itself was 0.25 cents lower at $6.95 a bushel in Kansas City for March delivery.

Strong finish

The day will also deliver industry data on the cane harvest, and sugar output, in Brazil's key Centre South region, responsible for some 90% of domestic production, expected to show a strong close to the crushing season.

"Brazil's Centre South crop is continuing to be harvested and final crush numbers are now expected to approach 600m tonnes," Sucden Financial said.

Estimates had been below 590m tonnes.

Investors were certainly taking no chances, taking raw sugar futures for March down 0.2% to 16.51 cents a pound in New York.

Bullish sentiment was tempered somewhat by an Egyptian purchase of 50,000 tonnes of raw sugar.

Evening markets: China order supports soy price. Wheat fades
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