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Morning markets: China move bolsters crop market confidence

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Often when US markets are closed, as they are for President's Day, farm commodities on other exchanges struggle to find direction.

But that wasn't such a problem this time, given two macroeconomic fillips.

The first was a raised hope that Greece will, after all, sometime this week receive its E130bn bailout package, with a growing idea around that the country has done enough in austerity terms to satisfy other European countries and the IMF lending it the money.

The second was China's announcement at the weekend of a cut in bank reserve requirements, signalling that monetary authorities have indeed changed to a more accommodative monetary stance in the face of weaker inflation.

An easier lending stance from the world's second-ranked economy supported a more risk-on stance, with the dollar easing 0.2% as of 08:20 GMT, and shares rising by 1.1% in Tokyo.

And, with China being a major buyer of commodities such as cotton,


and soybeans, the idea of easier money underpinned raw material prices too on what markets were open.

'Thai tardiness'

In Tokyo, rubber rose 2.7% to 326.80 yen a kilogramme for the benchmark July contract, having touched 328.10 yen a kilogramme earlier, its highest since September

Higher prices of oil, the source of synthetic alternatives, also helped, with Brent crude adding 0.7% to return above $120 a barrel, helped by an Iranian ban on sales to French and UK oil companies.

Indeed, many traders were surprised that rubber did not do even better, given that this too is a period of seasonal production downtime in Thailand the top exporter.

Still, Ker Chung Yang at Phillip Futures in Singapore noted the negative impact on the market of delays in Thailand implementing a 17bn-baht rubber buying programme, to support prices.

"The Thai government's tardiness in kick-starting its planned price-intervention scheme is affecting market confidence, keeping prices volatile amid macroeconomic uncertainties," Mr Ker said.

Export recovery

Palm oil

, another big Chinese import, stood 0.3% higher at 3,253 ringgit a tonne in Kuala Lumpur, having itself got a little altitude sickness earlier on at an eight-month high of 3,276 ringgit a tonne.

Besides the macroeconomic supports, the vegetable oil also got a boost from cargo surveyor data implying a sharp improvement in Malaysian exports.

Intertek Testing Services, which last week said that shipments fell 14% in the first two weeks of the month, on Monday put the decline for the first 20 days at a 2%.

Technical factors

Some negative pressure is being placed on the market by technical considerations, with the vegetable oil trading within a narrowing range, which may precede a break-out which would set the direction for the next trend.

"The price has traded steadily above the trendline formed since last October. However, the upside is being capped at the 3,300-ringgit-a-tonne level," Mr Ker said.

"If we were to witness a breakout above 3,300 ringgit, the next resistance level could be close to 3,450 ringgit level."

But should palm oil break through a floor at 3,000 ringgit a tonne, "we will not be surprised if it moves closer towards the 2930-ringgit level".

Drought threat

In China itself, farm commodities traded broadly upwards too, with


rising 0.5% to 6.626 yuan a tonne for September delivery on the Zhengzhou exchange, when


for September added 1.3% to 2,574 yuan a tonne.


for September added 0.6% to 2,386 yuan a tonne on the Dalian, following a warning of potential drought in the important north east producing region during the spring sowing period.

"Since autumn, rainfall in the northeast has been 30-80% less [than normal], which has reduced water supplies to rivers and led to a shortfall of water storage in reservoirs," China's farm ministry said.


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