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Morning markets: palm soars, supporting gains in Chicago too

Could the revival in two crop prices at the end of the last session signal the nadir of the downward move?

"We will take one day at a time, but Tuesday could have been at least a short-term lowm" Mike Mawdsley at Market 1 said.

"The remaining fund longs hope that row crop lows set on Tuesday will provide the base for sideways/higher chart action into Thanksgiving," said Richard Feltes at RJ O'Brien, while noting that many investors may need more reassurance.

"We'll need several days of stable to higher row crop markets to convince trade that downtrend has abated."

Palm springs

But early deals offered hope for bulls, with grains and oilseeds adding somewhat cautious gains.

Apart from in Kuala Lumpur, where palm oil put in a more exuberant rally, extending its rebound of the last session (on Monday) when data showing Malaysian stocks had risen less than thought last month, and bumper exports so far in November, fostered a sharp recovery from three-year lows.

Kuala Lumpur's benchmark January lot added 3.9% to 2,414 ringgit a tonne as of 09:25 UK time (03:25 Chicago time).

The recovery took above 8% its recovery in less than two sessions, ie since hitting its three-year low of 2,220 ringgit a tonne, and appeared to fulfil expectations from the likes of Rabobank that Monday's market bottom may provide a longer-standing floor.

Price revivals

That offered some support for Chicago soyoil although, at a discount of some $300 a tonne, palm oil has plenty of room for playing catch-up with its rival vegetable oil.

Chicago's December soyoil contract, which earlier this week set a two-year low for a spot contract, added 2.0% to 47.98 cents a pound.

And that in turn was a support to soybeans themselves, which rose 1.2% to $14.24 a bushel for January delivery, building a little bit of a buffer from the four-month low hit in the last session.

Outside influences

But can the gains hold?

External markets hold part of the answer to this, with broader sentiment influencing fund activity which has shown itself a key cause of lower prices, with fears over eurozone debt and the US fiscal cliff encouraging liquidation.

Such considerations feed into the value of the dollar too, which Societe Generale highlighted as likely to have a key impact on commodity prices heading into the end of the year.

The greenback - whose strength makes dollar-denominated assets less affordable as exports, so tending to weaken commodity prices was actually steady in early deals.

Data later

But for promising data of the kind which are supporting palm oil, well, Friday's larger-than-expected US Department of Agriculture upgrade to estimates for the domestic soybean crop has created a burden to prices.

Data on Wednesday on the US soybean crush last month offer an opportunity to lighten the load.

The crush is seen rising to 147.7m bushels, from 119.7m bushels in September thanks to the boost from harvest supplies and lower soybean prices, and a figure which would mark the highest in nearly two years.

"A crush on the higher end of estimates would not be a surprise with crusher running near capacity on positive margins and strong meal export demand," Kim Rugel at Benson Quinn Commodities said.

'Market needs to see fresh demand'

However, more may be needed to sustain a rebound.

"Firmer cash bids and firmer spreads look to offer a bounce on recent break," Ms Rugel said.

"But the market needs to see some fresh demand from China and/or South American weather concern to really rally as large long fund positions and lack of bullish supply story keeps market defensive and supply bears in charge."

Talk has been of China cancelling orders made earlier at high prices, and of benign South American weather for sowing, after a poor start.

'Real issues'

Wheat at least had some data already in the bag to support it, with the USDA overnight cutting to a feeble 36%, from a poor 39%, its estimate of the US winter wheat crop in "good" or "excellent" condition as of Sunday.

"South Dakota has real issues," Benson Quinn said, noting a good or excellent rating of 3% for the state.

"This data should provide support early in the session, but Wednesday's price action is going to depend on whether or not corn and soybeans can sustain the modest rally that developed late in today's session," the broker added.

Low condition ratings bode ill for yields ahead. But investors may be keen to see how crop reacts to weekend rains, besides to recent frosts, before getting too gloomy over wheat prospects so early in the season.

Wheat for December added 0.4% to $8.55 a bushel.

'Building in a risk premium'

Corn, meanwhile, added 0.5% to $7.28 a bushel for December, supported by wheat, but also by signs of import demand, with Nonghyup Feed, South Korea's largest feedmaker, buying 139,000 tonnes of corn for February and March arrival, albeit from unknown origin.

This followed a purchase by South Korea's Major Feed Group on Tuesday of 130,500 tonnes of corn via tenders, although the Korea Feed Association passed on a 55,000-tonne tender.

Furthermore, US domestic cash prices are being supported by a reluctance among farmers to let go of crop at prices well below summer highs, and by low rainfall reviving fears over river water levels and raising transport costs.

"River basis levels inched higher despite barge freight firming," Benson Quinn said.

"The freight market seems to be building in a risk premium with the uncertainty surrounding water levels/flow ability along the waterways north of Cairo, Illinois."

EU needs

Hopes of higher prices were also lifted by comments by AgResource, the Chicago-based consultancy, that values could be lifted to a record $9 a bushel by the import needs of the European Union, which is finishing off a poor harvest itself.

AgResource pegged EU corn imports in 2012-13 at 10m-12m tonnes, well above the USDA estimate of

Evening markets: corn, soy toil for gains. Coffee caves in
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