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Morning markets: China data help soybeans resist firm dollar

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The European Union agreement (bar the UK) to tougher fiscal measures to underpin the future of the euro was viewed by investors as a step forward. But not very far.

Asian shares managed gains, with Seoul shares adding 1.3%, Sydney stocks 1.2% and Tokyo stocks closing up 1.4%.

But the safe haven of the

dollar

rose too, by 0.4%, helped by a drop in the euro, and a symptom that even if the EU agreement is a victory, it is only a small one.

Moody's said the eurozone crisis is still in a "critical" and "volatile" stage.

At Westpac, Russell Jones said that "no matter how you slice and dice things, in the context of a single currency regime, the tough budget rules and brutal austerity programmes embedded in the Stability Union will consign Europe to an extended period of recession, if not depression".

Dollar revives

So facing into the headwind of a stronger dollar, which makes dollar-denominated assets less affordable to buyers in other currencies, many commodities baulked.

Brent

crude

dropped 0.7% as 0f 09:00 GMT, with London

copper

down more than 1%.

Nor was it helpful to agricultural commodities, which continued to tread the negative territory which has been their default home over the last few months.

That said, given that they faced the extra burden of largest stocks data unveiled by the US Department of Agriculture on Friday - for all of the big three Chicago crops, corn, soybeans and wheat on both global and domestic bases - the falls were less than some might have expected.

'Positive sign'

Indeed,

wheat

seems to be gaining some surprisingly-strong support, taking its too its strong rebound in the last session to pare losses to a modest 0.2% by the close.

"It's not difficult to view the recovery posted in the wheat market as a positive sign," Brian Henry at Benson Quinn Commodities said.

While the renewed fundamental picture pained by the USDA (record harvest in 2011-12, carrout stocks at a 12-year high…) "does not support higher prices, technicals are hinting at a possible recovery".

Still, "if the wheat market is going to find support from these levels, technical or not, the Chicago March contract is going to have to remain above $5.84 a bushel", the 20-month low posted on Friday.

The lot did so, not falling (thus far) below $5.93 a bushel, and standing at $5.94 ½ a bushel as of 09:00 GMT, down 0.3% on the day.

'Challenging for everybody'

Fundamentally, wheat had support from the continued damp in Australia, which is holding up harvest lowering the quality of grain still left in the field.

CBH Group, the main grain handler for Western Australia, the top grain growing state, highlighted in a weekly report that "significant rainfall across most of the state… caused disruption to harvest".

It added: "The period leading up to Christmas will be particularly challenging for everybody this harvest as sites fill up and we deal with the impact of the latest rain delays."

And farmers in eastern states have been hampered too.

Commonwealth Bank of Australia analyst Luke Mathews said: "It was a wet weekend for much of the east coast wheat belt, with the heaviest falls in central Victoria, the Riverina, northern New South Wales and south east Queensland", although "drier weather is forecast this week".

South America prospects

Corn had no such support, with parts of Brazil receiving some rain over the weekend and weather models showing "large areas of Mato Grosso, Goias and Minas Gerais [states] seeing 4 -10 inches of rain over the next seven days", according to WxRisk.com

Which eases fears for Brazilian dryness in this, a La Nina season. But that said, south eastern parts of the country, Argentina and Paraguay "see very little additional rainfall over the next seven days", the weather service added.

Nor did regulatory data late on Friday show a cessation of the trend of investors selling down positions in in the grain, with large funds cutting their net long holding in futures and options by 18,400 contracts to 51,462.

Chicago corn was off its lows, but still down 0.3% at $5.92 ¾ a bushel, increasing its discount to wheat a touch.

'Fundamental robustness'

That left

soybeans

to revert to their recent position as the best of a weak bunch, standing unchanged at $11.07 a bushel for January delivery.

And this despite, arguably, emerging the weakest from Friday's USDA's data revisions, with an unexpectedly large (if hardly mega) upgrade to the US stocks figure.

What they had in the favour was more promising Chinese import data.

There have been two ideas going around about China's import prospects for the oilseed. The likes of Oil World say that a period of large purchases is beginning to replenish depleted inventories, while Australia & New Zealand Bank has warned over weak margins for Chinese crushers, which typically signal weak imports.

In November, soybean imports by China, the world's top buyer, rose 50% year on year, if a more modest 4% rise month on month, to 5.7m tonnes, data on Saturday showed.

The data overall were viewed less equivocally, including an 11.9% year -on-year rise in iron ore imports, and 29% rise in copper buy-ins.

"The numbers also reflect the fundamental robustness of underlying economy and its resilience despite of ongoing noise of softening growth," an in-country bank source said, adding that the purchases were "no doubt a result of some bottom-fishing buys on the back of the recent price falls".

'Mixed, but still bearish'

Elsewhere, Kuala Lumpur

palm oil

dropped 2.2% to 3,017 ringgit a tonne, getting its first chance to react to Friday's bearish USDA data (although they including a 65,000-tonne downgrade to 5.32m tonnes in the world end-2011-12 stocks estimate for the vegetable oil).

In New York,

cotton

for March eased 0.1% to 90.38 cents a pound, balancing USDA estimate changes on Friday and reports of revived demand.

Paul Deane at ANZ termed the USDA forecast changes for cotton – including a downgrade to the domestic crop but also to mill use in China, India and Turkey - as "mixed" but added they were "overall still viewed as bearish".

"World cotton stocks are now expected to build by 12m bales over the 2011-12 season, a similar magnitude to annual US cotton exports," he said.

By Agrimoney.com

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