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Evening markets: China, Italy, Syria encourage crop sellers

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It needed a strong argument for any risk asset to avoid Monday's sell-off.

A plethora of negative news, from rising Chinese inflation to attacks on French and US embassies in Syria to fears for the eurozone debt crisis spreading to Italy, kept the likes of shares and commodities on the defensive.

And even bonds, if they were Italian, with the cost of insuring against a default by the eurozone's third-largest economy rising to a record, after an attack by the country on short sellers merely focused attentions on its debt problems.

(Italy has, after Greece, the highest debt-to-GDP ratio in the eurozone.)

Limit down

Unsurprisingly, US shares were 1.4% lower in late deals.

And the

dollar

, as an indicator of broad investor jitters, soared 1.2% against a basket of currencies, a pressure on dollar-denominated exports such as many commodities.

Prices of many raw materials, including

copper

and

crude

, fell. And, among farm commodities,

cotton

was particularly affected, relying on for its biggest import market on China, which faces the likelihood of further interest rate rises following its poor inflation data.

Cotton futures tumbled on China's Zhengzhou exchange, by nearly 6% for July delivery and 3.2% for the best-traded January lot.

In New York, December cotton fell the daily maximum allowed, 5.0 cents, to close at 108.88 cents a pound, with further pressure from rain in Texas, improving prospects for a crop which has been badly hampered by drought.

Margin change

Still, while many other soft commodities were also notably weak, with London

coffee

falling 3.4% to $2,354 a tonne,

sugar

managed to put the brakes on its decline.

And this despite - or was it because of - a lift to New York margin requirements on sugar, meaning futures investors need to put up more money upfront to cover their positions.

"The [New York] exchange upped the initial margin requirements, which wasn't completely unexpected, but will this put more pressure on cash-strapped shorts?" Thomas Kujawa at Sucden Financial in London said.

With downgrades expected this week from Unica, the cane industry group, and consultancy Datagro to estimates for Brazil's sugar output, New York's October futures contract limited its decline to 1.5%, leaving the lot to close at 28.92 cents a pound.

In London, August white sugar set a contract high of $823.80 a tonne before closing at $817.90 a tonne, down just $0.60 on the day.

Russian upgrade

Chicago's bhig crops faced similar dynamics, with

wheat

facing the full wrath of investors while corn and soybeans held on.

Wheat's problem was in part down to harvest pressure, and a dearth of the weather problems affecting other crops. Indeed, conditions may have been helpful.

"Wheat struggled under seasonal pressures as harvest weighs while the Minneapolis [spring wheat] market struggles under weak spot market prices as railroads get back moving as flood waters recede across North Dakota," Benson Quinn Commodities said.

But sentiment was also damaged by a lift by Moscow-based consultancy SovEcon to estimates for the Russian grains harvest, putting it within range of 2009, pre-drought levels.

Wheat futures tumbled on both sides of the Atlantic, ending down 2.1% at E190.75 a tonne in Paris for November, and 1.4% at £162.50 a tonne in London for the same month, and off 1.8% at $6.39 ¼ a bushel for Chicago's best-traded September contract.

Minneapolis wheat fell 2.8% to $7.94 ¼ a bushel for September.

'Critical time'

But

corn

was protected by growing fears for hot weather, and forecasts of temperatures approaching 100 degrees Fahrenheit in corn-growing areas.

"The bullish factor has been the weather as more concern is developing surrounding the location of the high pressure ridge which has been over the central US, but will migrate to the south east in midweek, but then move back over the central US by weeks end," Darrell Holaday at Country Futures said.

"There is still some rain in the forecast, but it is sparse enough that the heat is going to be a problem if it persists."

Benson Quinn said: "The heat is coming at a critical time for corn with key silking and pollination upon us as late planting pushed back timing from early-to-mid July to mid-to-late July."

And, with some investors potentially reluctant too to take huge positions ahead of a key US Department of Agriculture crop report due on Tuesday, Chicago corn for September closed up 0.1% at $6.43 a bushel.

The better-traded December lot fell but by a relatively mild 0.7% to $6.32 ¾ a bushel.

China trade

Soybeans

faced early disappointment, with China the top buyer of the oilseed too.

Furthermore, preliminary Chinese June trade data showed soybean imports at 4.3m tonnes, down 5.7% month on month, and 31% year on year.

However, with the hot weather posing some threat to soybeans too, and with China buying 110,000 tonnes of US soybeans overnight, losses to futures were limited, with the August contract losing 0.25 cents to end at $13.46 ½ a bushel.

New crop November soybeans added 0.2% to $13.47 a bushel.

By Agrimoney.com

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