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Morning markets: firm oil keeps a floor under ag prices

It may be a holiday in the US on Thursday.

But that does not mean that investors elsewhere could take a day, with a slew of influences to negotiate, including the ousting of Mohammed Morsi as Egyptian president, and Portugal's political crisis.

In fact, concerns over both Egypt and Portugal, where the prime minister and junior coalition partner appear to be heading toward agreement and avoiding a government split, appeared to be easing a notch.

Shares opened firm on European markets, after some strong performances in Asia too, rising 1.1% in Sydney and 0.5% in Shanghai, if losing 0.3% in Tokyo.

Meanwhile, Brent crude, which has risen on fears for hiccups to the Suez canal, a major route for shipping oil from the Middle East to the West, eased, but not by much, dipping 0.3% to $105.47 a barrel as of 08:55 UK time.

And oil is a key influence on many agricultural markets, given the use of a number of crops in making biofuels.

Rubber's bounce

On agricultural commodity markets, rubber nonetheless extended its recovery in Tokyo from a nine-month low of 225.00 yen a kilogramme reached in late June, when prices were undermined by the concerns over China's banks which also sent Shanghai stocks tumbling.

China is a major rubber consumer and importer.

Rubber prices have recovered with Shanghai stocks, but have also been underpinned by the increase in oil prices, which raise the price of synthetic alternatives.

Rubber for December added 1.2% to 246.80 yen a kilogramme.

'Temporary support'

In Kuala Lumpur, palm oil, which is connected to energy through its use in making biodiesel, showed gains too, adding 0.6% to 2,379 ringgit a tonne.

Say Hwa, investment head at Phillip Futures, said: "The surge in crude oil is due to shrinking US stockpiles and possible disruption on the Middle Eastern supply amidst the political turmoil in Egypt.

"If the political environment in the Middle East were to remain uncertain going forward, we might expect crude oil prices to go into an uptrend.

"This would provide temporary support for crude palm oil prices."

Seasonal factors

There was a warning over prices ahead, given that palm oil output is in a seasonal upswing.

"Rising production of palm oil in the second half of the year has [historically] dampened price gains in crude palm oil," the broker said.

"Prices are likely to come under pressure in the coming months."

Still, for now, the vegetable oil is also getting support from ideas that firm exports were strong enough last month to trump production and reduced Malaysian inventories to a one-year low of 1.74m tonnes.

Investors will see whether their expectations are confirmed next Wednesday, when the Malaysian Palm Oil Board unveils monthly data on domestic output, exports and stocks.

Grains gain

On grain markets, Australian New South Wales wheat for January added 1.7% to Aus$285.30 a tonne, lifted by the firm performance of Chicago contracts in the last session, besides China's purchase of 300,000 tonnes of Australian wheat.

In China itself, wheat for January, the best-traded lot, edged 1 yuan higher to 2,762 yuan a tonne, below earlier highs after China said it was to stop stockpiling in Henan, the top wheat growing province, to avoid stoking price increases.

On China's Dalian exchange, corn for January added 1.0% to 2,364 yuan a tonne while, in the oilseeds complex, soymeal extended its recovery, adding 0.5% to 3,171 yuan a tonne.

Soybeans themselves, which have been relatively weak, undermined by exports believed to have topped a whopping 8m tonnes last month, added 0.3% to 4,621 yuan a tonne.

Grain investors may also take note of reports that South Korea is to resume imports of US white winter wheat which were halted after the discovery of unapproved genetically modified plants in Oregon.

Sugar slips

Back on the Zhengzhou, sugar for January did less well, falling 1.4% to 4,923 yuan a tonne, feeling the pressure from benchmark New York values in the last session, on a weakening currency, but strong production prospects, in Brazil.

"The continued weakening in the Brazilian real and the favourable start to the Indian monsoon remain the key drivers of global sugar prices," Luke Mathews at Commonwealth Bank of Australia said.

Phillip Futures also noted that "expectations of drier weather" in Brazil's key Centre South region were also pressing on prices, in boosting prospects for cane harvesting.

Evening markets: grains revive as 'pivot point' approaches
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