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Morning markets: Chinese slowdown casts cloud over markets

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China, which a week ago was responsible for surges in crop futures on talk of huge purchases of corn and soybeans, this Tuesday had a dampening effect on prices.

The world's great economic hope revealed that it wasn't quite as large a powerhouse as some had expected, with GDP growth slipping to a two-year low in the July-to-September quarter.

At 9.1%, the growth rate hardly qualifies the world's second-largest economy as a slouch. But it was enough to add a further dent to confidence in the world economy already dented by ideas that the eurozone crisis may not be as readily solvable as had been hoped.

The impact was to lend markets a risk-off feel.

Shares

stood 2.3% lower in late deals in Shanghai, having closed down 1.6% in Tokyo, 1.4% in Seoul and 2.1% in Sydney.

Running out of tread

But at least one usual risk-off dog, the

dollar

, didn't bark, holding steady rather than rising as it usually does when investors take fright. That helped many dollar-denominated commodities, such as

oil

, stand firm by leaving intact their prices in foreign currency terms.

And it helped ensure agricultural commodities did not fall too far out of bed.

OK, not that all managed.

Rubber

, for instance, dropped 2.6% to 312.90 yen a kilogramme in Tokyo, for the benchmark March contract, as an industrial – rather than edible - farm commodity on which traders have been pinning particular hope for Chinese demand.

In Singapore, Ker Chung Yang noted talk of "high stockpiles" of the tyre ingredient in China already, while the bullish impact on prices from flooding in Thailand, the top exporter, is being balanced to some extent by supply chain disruptions slowing demand there too.

'Good moisture for seeding'

In Chicago,

soybeans

, of which China is the top importer, were notably affected dropping 1.3% to $12.38 ½ a bushel as of 07:35 GMT (08:35 UK time), with the country's poorer economic growth counterbalancing talk of rising processing capacity.

The official CNGOIC think tank said that China's soybean crush capacity would rise by 12.5m tonnes to 125m tonnes next year.

South American weather is deemed favourable to farmers planting soybeans, although a drier spell looks on the way for many areas.

"Brazilian rainfall over the past week has been heavier than usual across the south of the country and should provide good moisture for soybean seeding which gets under way over the next few weeks," Paul Deane at Australia & New Zealand Bank said.

Bulls got some solace from overnight US Department of Agriculture data on the progress of the US harvest, which showed 69% completed as of Sunday, less than figures of up to 75% expected by traders.

Rapid harvest

Indeed, "it appears farmers switched over to corn with corn harvest at 44% completed and on the higher end of expectations", Benson Quinn Commodities said.

"Mother Nature is allowing the majority of the Corn Belt to go at it nearly 24 hours a day, seven days a week.

"Based on the current forecast it would appear that a large portion of the Corn Belt will be complete by the time we get to the end of the month."

Which was one pressure on corn prices, as was the improved South American weather.

"Rain over the last 10 days in Argentina's central grains-growing area helped farmers with their 2011-12 corn sowing," Lynette Tan at Phillip Futures said.

'Back with a vengeance'

However, she added that "dry weather could return due to a La Nina prediction which typically brings dry weather to the area".

And there are doubts as to how much lower corn can go for now, with China looking a buyer below $6 a bushel and current prices offering rich profits for many users, being reflected in strong cash prices, given the time of the year and harvest pressure.

"The hog crush margins remain strong and the ethanol margins remain strong," Darren Dohme at Powerline Group said.

"Ethanol values are still trading 24-37 cents under the RBOB gasoline market. This will keep the blending demand for ethanol very strong.

"Exports are even coming back with a vengeance as China bought close to 1m tonnes of corn last week."

Discount remains

More on US exports is expected later with the release of delayed US cargo inspection data.

In the meantime, Chicago corn for December delivery fell 0.8% to $6.35 ½ a bushel.

And that was a depressant on wheat too, although the grain managed to close a little its unusual discount to corn, falling 0.6% to $6.20 ¼ a bushel for December, a discount which reflects its ample supplies, in contrast to the tight stocks outlook for its peer.

Indeed, as Mike Mawdsley at Market 1 noted, "history suggest that wheat doesn't stay under corn for long".

And there is poorer news from Australia, after the string of upbeat pronouncements on crops.

"Hot weather is forecast through the south eastern Australian wheat later this week according to Weatherzone, with temperatures in the mid-to-low 30s (Celsius), potentially posing a risk to some reproducing crops," Luke Mathews at Commonwealth Bank of Australia said.

Still, with world stocks of 202.4m tonnes on their way at the close of 2011-12, according to the USDA, the world, in wheat, has a cushion against a few setbacks.

By Agrimoney.com

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