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Morning markets: strong China imports rescue wheat futures

Chinese data cast something of a positive spell on many markets including, a little, on agricultural commodities.

A purchasing managers' index for factories in the world's second-ranked economy showed a reading of 49.1, still signalling decline (in being less than 50.0), but a slower one than of late.

Indeed, a new orders' index of 49.7 represented a six-month high.

That was enough to provoke a revival in the price of many assets, including European shares, which  traded a touch higher in early deals.

The dollar dropped too, by 0.2%, in a signal of a less risk averse stance.

Wheat imports soar

And commodities had extra Chinese statistics to deal with too, some of which were positive.

In wheat, for instance, Chinese imports last month came in at a 524,000 tonnes, nearly three times those of September last year, and amid growing ideas over the country's appetite for the grain.

It also took imports for the first nine months of the year to 3.2m tonnes, the highest since 2005.

Besides representing an alternative to corn in feed, China's wheat imports come amid ideas that its harvest this year was nowhere near as strong as US Department of Agriculture data have it, at some 118m tonnes.

Some analysts have talked of figures 10m tonnes less, thanks to observations of disease.

Signally, China has purchased this month 295,000 tonnes of high-protein, ie milling rather than feed, wheat from Canada.

This, of course, did not show up in the September data, which showed 426,000 tonnes coming from Australia (likely to be largely feed wheat), and 83,000 tonnes from the US.

'Raising concern'

However, this comes against a backdrop of concerns that commodities are of waning appeal to investors.

"Weakness in the CRB index," a broad commodities index which on Tuesday hit its lowest since early August," is raising concern about additional fund liquidation due to the lack of upward momentum in commodity prices and continued concerns about the state of the global economy", Brian Henry at Benson Quinn Commodities said.

'Crop issues continue to loom'

What wheat also had on its side, however, helping futures to recover early losses was official confirmation from Ukraine of an export ban from November 15.

As an additional support, there are growing concerns over the Argentine crop, with wet weather reported to be promoting the spread of disease, besides causing crop losses from physical flood damage.

Nor do Australia's crops look set for late rains which could still make a difference in some areas still in grainfill.

"Australia's key winter cropping regions are forecast to remain mostly dry through to the end of the month, an extension of the recent drying trend," Luke Mathews at Commonwealth Bank of Australia said.

Indeed, "crop issues continue to loom over the market," Mr Mathews said, noting also that "Russia's 2013 Volga River winter wheat crop appears set for another difficult season with persistent dryness resulting in lower planted area and poorly established crop".

Mexico deal

Wheat for December added 0.4% to $8.72 a bushel in December as 09:10 UK time (03:10 Chicago time), extending its declines of the last session.

And corn recouped losses to make some headway too, with Chinese data showing imports of the grain last month, at nearly 386,000 tonnes, nearly twice those of a year before.

The market has also been negotiating the loss of US trade to major customer Mexico, which on Tuesday was revealed to have chosen other supplies (probably Brazilian) for a 270,000-tonne deal previously booked as optional origin.

Options pull

There is also the gravitational pull from options, and their forthcoming expiry, to deal with.

"It is worth noting that the bulk of the November option open interest for both calls and puts is at the $7.50-a-bushel strike level," Mr Henry said.

"Typically option expiration on serial months doesn't offer much influence, but the fact the Nov options have high open interest near a key psychological level may result in the December corn futures contract migrating back towards the $7.50 price level for the balance of the week."

The contract stood at $7.56 a bushel, a gain of 0.25 cents.

'Concerns about planting conditions'

Soybeans, meanwhile, posted modest, gains, of 0.2% to $15.56 a bushel for the November lot.

At Phillip Futures, Ker Chung Yang flagged support to the market in the last session from late commercial buying".

Furthermore, "over the long term, fundamentals are strong with a tight supply and solid demand", and "there are concerns about planting conditions around the South American continent", as highlighted by last week.

In fact, reports are mixed over the prospect of much-needed dryness in Argentina, and rains in northern Brazil.

CBA's Luke Mathews noted a World Weather outlook for Brazil "that rainfall in centre south regions will help crops following the recent drying trend.

"However, the rainfall is forecast to be generally light and crop stress may soon return."

Softs soften

Among soft commodities, Chinese data show imports of cotton (of which it is the top buyer) at 263,000 tonnes last month, up a modest 4.0% year on year, but down some 14% on the August number.

With the price protection from low certified inventories for delivery against New York futures also appearing erode, the December lot shed 1.2% to 73.40 cents a pound in the Big Apple.

Raw sugar fell too, by 0.2% to 19.61 cents a pound for March, even though China imported 586,000 tonnes of the sweetener last month, up 25% year on year, and a small increase year on year.

A decline in China's sugar imports has been a big worry to sugar bulls, with US officials in Beijing estimating they could fall by three-quarters to 1.0m tonnes in the newly started 2012-13.

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