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Morning markets: China returns to ease ag market jitters

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The cloud caused by Federal Reserve minutes, and a coolly-received Spanish bond auction, dissipated on Thursday, offering a better outlook to risk assets, agricultural commodities included.

In fact, there was some positive macro-economic news, with a purchasing managers' report for China's services sector for March coming in at 53.3, down 0.6 points month on month, but still healthily within expansion territory (above 50.0).

Many Asian share markets managed gains, while the safe haven of the

dollar

went into retreat.

And, for agricultural commodities, China also offered a boost from a positive performance by its crop futures, on the reopening of its markets after a three-day break.

They were largely playing catch-up, of course, after being closed since before Friday's US Department of Agriculture sowings and grain inventory data, which sent prices soaring on markets which have been open.

Still, the rises in China offered a reminder of the country's huge appetite for raw materials, many crops included.

China's return

Dalian

corn

rose 1.4% for the best-traded September contract to 2,464 yuan a tonne, equivalent to a little over $390 a tonne, or more than $9.90 a bushel.

Soybeans

for September added 2.1% to 4,608 yuan ($730) a tonne, more than $19.80 a bushel, with Dalian

soyoil

soaring 3.1% to 9,882 yuan a tonne.

(Less-traded May soybeans rose 2.2% to 4,460 yuan a tonne, the highest for a spot contract since 2008.)

Prices of

sugar

, in which China is also emerging as a leading importer, rose on the Zhengzhou too, by 0.5% to 6,665 yuan a tonne for September, although

cotton

missed out on the rally, falling 0.6% to 21,155 yuan a tonne.

Prices rise

In the US, the rises, and better broader markets picture, helped Chicago's main crops set off on a better footing, with soybeans taking their usual place at the head of the pack.

The May contract added 0.5% to $14.26 ¾ bushel as of 09:10 UK time, with the new crop November lot gaining 0.4% to $13.81 ½ a bushel.

Indeed, the November lot resuming a trend of winning ground against new crop corn, after Friday's USDA sowings report showed the grain had won the first round of the battle for acres, by getting a huge share of available land for spring sowings, in part at the expense of the oilseed.

December corn gained, but a modest 0.1% to $5.45 a bushel, putting the much-watched soybean: corn ratio at 2.54.

'Short-term correction is due'

That is not to say that there are no dissenters around of the soybean rally.

At Standard Chartered, Abah Ofon said: "We continue to expect soybeans markets to outperform in 2012, but prices appear overbought and a short-term correction is due."

But, such thoughts have struggled to gain traction amid a fresh round of downgrades this week to estimates for South American harvests.

Overnight, the US Department of Agriculture's Brasilia bureau extended the spree by pegging the Brazilian soybean crop at 66.0m tonnes, 2.5m tonnes below the USDA's official estimate.

Crop condition

Corn was overall relatively slow out of the blocks, gaining 0.1% to $6.57 ¼ a bushel, with some believing South American corn crops may even have been underestimated.

This allowed Chicago May wheat to close some of its discount, by adding 0.3% to $6.41 a bushel.

Sure, the condition of the US crop has improved, and there is better hope for dryness-hit European ones too after a round of rains this week.

But there is still the prospect of cold weather for the US early next week, which if it means a freeze (which is not currently expected) could spell trouble for winter wheat, which has developed unusually quickly.

'Could be fireworks'

Furthermore, there is the fact the speculators already have hefty short positions in Chicago wheat to consider.

"I am concerned about the possibility of the speculative trade overcrowding the short position in Chicago futures," Brian Henry at Benson Quinn Commodities said.

"It seems Chicago futures constitute the short leg of inter-market wheat spreads and spreads against corn and soybeans.

"It has worked well to this point, but the unwinding of the position could result in some fireworks."

Data later

Where grains hang on to gains could depend, for wheat, in part on the results of an Egyptian grain tender due later.

US wheat has been competing hard, and winning, at recent tenders from the world's top wheat importer, but Argentine grain emerged as a tougher rival at the last event, and Russia could be about to regain pre-eminence if it is to release 1m tonnes of state wheat to exporters, as reports suggest.

Weekly US export sales data are expected to show a wheat figure of 300,000-500,000 tonnes, in line with the previous week's 403,000 tonnes, old crop and new.

Soybean sales are expected to pick up from 592,000 tonnes to 600,000-850,000 tonnes, with corn expected to show a huge bounce, to 400,000-700,000 tonnes, from its multi-year low of 158,000 tonnes the previous week.

'Quite vulnerable'

Among soft commodities, New York raw sugar fell, by 0.1% to 24.39 cents a pound, despite the rise in its Zhengzhou peer.

But New York cotton managed some recovery from its sell-off of the last session, adding 1.0% to 90.21 cents a pound.

After all, as veteran Louisiana-based analyst Mike Steven said, "I'm not sure that there was any cotton specific news to account for the sell-off in cotton.

"However, our market was quite vulnerable after strong couple of weeks that attracted a lot of speculative buying.

"And after all, cotton failed to react to what could easily be considered a bearish planting intentions report and truthfully held remarkable steady."

Whether cotton hangs on to gains may depend on its own US export sales, with some talk of falling demand.

"It is very important that shipments remain high," Mr Stevens said.

By Agrimoney.com

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