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Morning markets: crop prices gain on US budget hopes

Bears lost some of their grip on agricultural commodities.

Much of the improved sentiment was down to a more risk-on feel in financial markets sparked by ideas that the US may, after all, avoid falling off its fiscal cliff.

Hope is waxing of US politicians reaching resolution on budget cuts and tax rises less threatening to the welfare of the world's biggest economy than the $600bn package which would come into effect by default next year.

John Boehner, the Republican speaker of the House of Representatives, termed as "very constructive" talks with, Democrat, President Barack Obama on Friday.

Sean Callow, senior currency strategist at Westpac Bank in Sydney said: "The good news is the tone of Friday's White House meeting.

Mr Callow added that "the prospect of no agreement until at least mid-December fits our view that the two sides are starting negotiations from rather distant points".

Extremely oversold

Shares opened firm in Europe, adding 0.9% in London, after closing 1.3% higher in Tokyo, while the safe haven of the dollar eased a touch.

And Chicago agricultural commodities managed too to shake off the selling pressure which has defined them for much of the past month or two.

In fact, the extent of the selling pressure appears to have created some ingredients for a bounce, of some kind.

Soybean futures, for instance, have a relative strength index, a key technical index of momentum, close to 20, indicating a market that is extremely oversold, with any figure below 30 deemed oversold to some degree.

'More manageable levels'

And data on speculators' positioning raised questions over whether the sell down by funds of their huge net long positioning in soybeans - liquidation which has dragged the oilseed to near-five-month lows down 80% from September highs -  might be close to running its course.

Regulatory data showed managed money holding a net long in soybeans of some 125,000 contracts, down more than 38,000 in a week, and the lowest since February.

The net long position has now halved in the last four months.

"Selling over the past several days may finally be bringing these long positions to more manageable levels," Kim Rugel at Benson Quinn Commodities said.

At Market 1, Mike Mawdsley added: "It's been an ugly few weeks in beans.

"Soybeans have certainly been hit the hardest lately, and perhaps some short covering may happen."

Rain in Argentina

Weather in South America offered some scope for worry, with further rains at the weekend for Argentina, where fields are already saturated so proving difficult to plant, besides some parts of Brazil, such as Minas Gerais, where it is more welcome.

(At least, for soybean growers planting crop and coffee producers enjoying a strong flowering season, if less so for sugar mills attempting to cut cane.)

And Argentina is set for more rain.

"The next three days looks fairly dry, but a strong cold front comes in November 23-24 and develops significant showers and thunderstorms over much of central eastern and north east Argentina, with 60-70% coverage of 0.5-2.0 inches (12 to 50mm)," weather service said.

China auctions stop

Furthermore, ideas of China undermining the market - after the cancellation of 600,000 tonnes of US purchases which sent futures tumbling in the last session - took something of a back seat when it announced it was to halt weekly sales from state inventories.

The move is aimed at ensuring that, with a new government stockpiling programme starting, and at more generous prices, traders do not simply sell soybeans back to the government.

Soybeans for May added 0.2% to 4,747 yuan a tonne on the Dalian exchange, and, for January delivery stood 0.9% higher at $13.95 a bushel in Chicago at 09:50 UK time (03:50 Chicago time).

Corn rises

For corn, the same idea of heavy sell-down of speculative positions having lowered the pressure for more appeared to hold some sway.

Managed money cut its net long exposure by 32,000 lots in a week to less than 203,000, down from more than 340,000 contracts three months ago or so.

Furthermore, the grain has received a lift from the US Environmental Protection Agency's refusal to waive requirements for blending corn-based ethanol into gasoline, despite protests from eight states that this is driving up food costs.

The mandate has not caused "severe economic harm", and waiving it "will have little, if any, impact", the EPA said.

Meanwhile, ideas of demand have been helped by growing forecasts for European imports, which Strategie Grains has forecast EU at 11.5 tonnes, well above the US Department of Agriculture forecast at 6.5m tonnes.

Corn for December added 0.7% to $7.31 a bushel.

'Rejection of the low side'

That helped fellow grain wheat out of a precarious situation too, precarious in that that the last session saw Chicago's December contract fall below the floor of a four-month trading range, before recovering some ground to get back in touch.

"It's worth noting that the markets did attempt to rally back to the initial down-side objectives in the last session, which could be construed as a rejection of the low side of the range," Brian Henry at Benson Quinn Commodities said.

And there is some hope from the fundamental perspective too.

"US hard red winter wheat crop conditions continue to deteriorate, raising serious questions about 2013 yield prospects," Luke Mathews at Commonwealth Bank of Australia said.

'Export sales were encouraging'

"Furthermore, importers have purchased significant tonnages of wheat as prices declined and US weekly wheat export sales were encouraging," Mr Mathews said.

Indeed, despite the bearish performance by wheat futures last week, "much of the wheat-specific news flow was supportive for price", he added.

However, there is one significant omission from the register of importers buying, and that is Egypt, the top importer, which has for some days been rumoured to be on the verge of fresh purchases, but not revealed any tenders.

That included a failure over the weekend to come up with a fresh tender.

Still, Chicago wheat for December added 0.4% to $8.41 a bushel.

Palm defies weak data

The better mood spread to palm oil too, for which the February contract added 1.1% to 2,455 ringgit a tonne in Kuala Lumpur, despite Societe Generale de Surveillance confirming a decline Malaysian exports so far this month.

The cargo surveyor put the drop at 1.2%, higher than the 0.1% drop estimated by rival Intetek on Friday.

In New York, raw sugar bounced 2.0% to 19.564 cents a pound for March delivery, helped by ideas of cane harvesting delays, thanks to Brazilian rains.