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|Morning markets: ag rally trips over Spain fears, US weather
By Agrimoney.com - Published 23/07/2012
For the first time in six weeks, Chicago grains and oilseeds opened on a weak note.
The drop was attributed in part to them rediscovering their link to external markets, which put in a negative start as concerns grew about Spain's ability to avoid following eurozone peers Greece, Portugal and Ireland in needing a bailout package.
Murcia over the weekend said it would follow Valencia in seeking government assistance, with other regions too reported as considering similar plans.
Shares tumbled 1.9% in Tokyo, 1.8% in Seoul and 1.3% in Shanghai, while the safe haven of the dollar added 0.4%.
Copper dropped 1.7% in Shanghai, while Brent crude dropped 2.4% to reach \$104.28 a barrel as of 09:00 UK time (03:00 Chicago time).
The renewed link between external markets and cotton was actually noted on Friday in cotton, for which "escalating concerns about the Spanish economy and financial system was the main headwind", Luke Mathews at Commonwealth Bank of Australia noted.
'Weather models are changed'
However, the weather forecast hardly helped either, in terms of bringing less in the way of heat, and more rain, for this week than had been expected last week.
In the one-too-five day period, "the weather models are changed somewhat over the weekend", WxRisk.com said.
"Initially it looked like there is going to be a lot of heat over the Plains and western Corn Belt which would once again surged east across the eastern Corn Belt until July 27-28."
However, a low pressure formation "will move through south west Canada then drop down into the Dakotas and Minnesota by Thursday and Friday," the weather service said.
"This movement will drive a series of cold fronts into the upper Plains and the Midwest and these cold fronts will stall setting up potential for areas of showers and thunderstorms."
The forecast is for "not a really significant amount of rain, it is a lot better than nothing".
Taking its toll
That took the some of the sting out of reports of further crop decline.
At Market 1, based in Iowa, where crops have been in relatively good health, the weather has been "taking its toll on the garden spot", Mike Mawdsley said
"I know some received rains [last week], but most didn't. If adequate moisture doesn't fall in the next week to 10 days and we continue to see mid to upper 90s Fahrenheit, this crop will fall off the cliff very fast.
"Yes, there will be corn to harvest, but test weights will be very light."
US Department of Agriculture data later is expected to show declines of three-to-five points in the proportion of domestic corn and soybeans rated in "good" or "excellent" condition.
'Markets feel tired'
Furthermore, many investors have got nervous over a bull rally now looking reasonably long in the tooth (four to six weeks is rated by some analysts as a typical period for the bulk of weather rally uplifts) and which is showing some negative technical pointers.
In corn, for instance, on Friday the September contract's "nine and 14 day relative strength indexes closed at 83 and 80, indicating they are overbought", Benson Quinn Commodities said, if adding that they started last week at such levels too but "only managed a meagre one-day correction".
"The December contract isn't too far behind with their nine and 14 day readings at 80 and 79."
Meanwhile, in wheat "at times the markets feel tired", the broker said, noting last week "it appears that soft red wheat and hard red wheat cash length was willing to place some hedges".
With little news over the weekend in the way of demand, questioning the degree to which high prices have already rationed consumers, prices started off on a soft note.
Corn for September stood down 1.0% at \$8.16 a bushel, with the better-traded December lot shedding 0.6% to \$7.91 a bushel.
November soybeans lost 1.2% to \$16.65 ¾ a bushel, faring narrowly worse than the August lot, which shed 1.1% to \$17.38 a bushel.
And September wheat was 1.6% lower at \$9.28 ¼ a bushel.
Not that sentiment was too bearish, with Lynette Tan at Philip Futures noting that "attention the week ahead will be turned more towards the soybean crop, which is set to enter the pod-setting and pod-filling stages that are critical to determining yield at harvest".
But this when "slight but insufficient relief may be in sight… Overall, U.S. weather reports show the drought is set to continue expanding and could endure until end-October".
Cotton, which as an industrial commodity tends to move more in line with macro-economic sentiment than other crops, was a notable loser, shedding 1.6% to 71.75 cents a pound in New York for December delivery.
And New York raw sugar for October fell 0.8% to 23.72 cents a pound, despite tightness in supplies evident in expectations that Thai sugar premiums will remain among their highest levels of the last two years.
In Kuala Lumpur, palm oil fell 2.0% to 2,980 ringgit a tonne. The vegetable oil is particularly vulnerable to sentiment on Europe, a top importer.
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