Will China do more to ease monetary policy, and stimulate growth in the world's second-ranked economy?

That was the hope around financial markets on Thursday, after the country revealed a drop in year-on-year consumer price growth to 1.8% in July, from 2.2% in June, and appearing to offer policymakers more scope for using monetary levers.

There was still some caution around, with China still to announce industrial output data later on Thursday.

But the data still injected a bit of a risk-on feel into markets, helping shares add 1.1% in Tokyo and 2.0% in Seoul and depressing the safe haven of the dollar by 0.1% against a basket of currencies, as of 08:50 UK time (02:50 Chicago time).

And, for commodities, stronger economic activity means a bigger appetite for raw materials.

'Adding to sugar's woes…'

Indeed, the data provided a positive backdrop for which even New York raw sugar managed to exploit, bouncing 0.6% from its one-month closing low to stand at 21.21 cents a pound for October delivery as investors were persuaded to cover some short positions.

Fundamentally, overall news remains bleak for the sweetener, (of which China has become a big importer).

"An improvement in the global sugar supply outlook has allowed traders to reduce the weather-related risk premium which was previously priced into the market," Luke Mathews at Commonwealth Bank of Australia said, noting a rebound of more than one-quarter in prices over June and July.

"In particular, conditions in Brazil have improved over the past few weeks while the Indian monsoon has recently favoured sugarcane-producing regions," sparking the Indian Sugar Mills Association to forecast that the country will have an exportable surplus of 2.5m-3.0m tonnes in 2012-13.

"Adding to sugar's woes have been reports from Al Khaleej Sugar, the world's biggest refinery, indicating that current global demand for white sugar is weak."

'Correction is over'

In Chicago, prices built on gains of the last session, although against the caveat that US Department of Agriculture crop data on Friday viewed by many investors as among the most important in recent history are instilling a note of caution.

"The trade may take a more tepid approach towards adding more risk prior to the report on Friday morning," Brian Henry at Benson Quinn Commodities said.

"Normally I would expect two-sided trade during the session that precedes the report."

Still, "at this point normal isn't really in the cards".

Certainly in soybeans, after a drop of more than $1 a bushel in the benchmark November lot from contract highs last month, "at these prices, the trade is going to want to carry length into the report.

"There are strong indications that the correction in the soybean complex is over."

China buying?

These include persistent talk of Chinese buying - over and beyond the volumes confirmed already this week of 106,000 tonnes, plus potentially a further 140,000 tonnes which were booked to "unknown", suspected by the trade as China, but with talk of European purchases too.

"There is plenty of speculation that China has booking three-to-four cargoes a day and may have bought up to 1m tonnes of soybeans on this break," Mr Henry said.

At RJ O'Brien, Richard Feltes noted "unconfirmed rumours that China has purchased up to 1m tonnes of beans this week".

That said, these sales are not expected to show up in weekly US export sales data later, in which soybean sales are forecast at 200,000-450,000 tonnes, compared with 246,000 tonnes last time.

Lesson from history

And, as an extra hope for row crops, Mr Feltes pointed to historical trends in trade forecasts for USDA numbers in August Wasde reports, compared with how the figures actually turn out.

"Note the consistent tendency for trade, even in recent stress years, to overstate soybean production and underestimate corn production," he said.

Last year, which was also a poor year for corn and soybeans, if mild compared with 2012, "witnessed much-lower-than-expected corn and soy production on the August crop report than trade expectations".

"The take home point from all of above is the likelihood that at least one of the major crops will be smaller than trade expects on Friday, which will tend to limit further liquidation in the run up to Friday' crop report."

Crops overestimated?

Besides the turn drier in the weather outlook, and confirmation that July was the hottest month in the lower US 48 states in records going back 117 years, corn got help from continued poor harvest results too.

Mr Feltes may have spotted a trend with crops which are not just turning out far below 2011 levels, but missing farmers' expectations, based on kernel counts, too.

"I'm hearing the same story from every one of these guys - counting kernels and trying to get an idea last couple of weeks and figuring on 80-100 bushels per acre when doing the counts.

"However, either because of weight, blank plants, or unpollinated ears the kernel counts seem to be high so far. We'll see if that continues as we get further along, but so far that is the trend."

Corn for December added 0.8% to $8.23 a bushel, while November soybeans gained 0.4% to $15.88 a bushel.

'Need soaking rain'

Wheat was strong too, with ideas for a cut on Friday to USDA estimates for world production countering any disappointment at Russia's decision on Wednesday to eschew grain export curbs – for now.

Chicago's September contract added 1.0% to $9.07 ¾ a bushel.

CBA's Luke Mathews also noted some nerves over Australia's crop, given a shortage of rain in some areas and expectations of an El Nino weather pattern which is not helpful to precipitation.

"Local weather conditions will soon be seizing more attention as we enter the critical spring growing period.

"Western Australia and South Australia need soaking rain while producers in the eastern states remain wary that spring rain potentials will likely be capped by the developing El Nino."

Rabobank said: "Follow-up rains are still required for parts of the Australian crop, in particular Western Australia, which has received below-average rainfalls between April and June and experienced a particularly dry and cold July."