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Morning markets: Greece fears return, tripping up crop bulls

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Not even China can hog market attention for too long when the eurozone debt crisis is alive and kicking.

Investor joy in the last session at Chinese economic data, which spurred gains in risk assets, gave way to caution on Wednesday as the potential for Greek default rose back up the agenda.

This time, Standard & Poor's having grabbed the headlines late last week by downgrading France, it was Fitch's turn among the ratings agencies to lead the charge, saying that Greece was likely to default.

Disappointing results from Citigroup, which on Tuesday unveiled an 11% drop in fourth-quarter earnings, helped the bears' cause too.

'Forecasters seem divided'

The result was more of a mixed feel on markets, with shares falling in Shanghai and Singapore, for instance, bit rising in Singapore and in Sydney (just).

Still, the


was weaker, a remnant of the risk-on feel, improving the competitiveness of dollar-denominated assets and helping some commodities rise. Brent


rebounded 0.4% nearly to $112 a barrel, as of 07:50 GMT.

But agricultural commodities were not among them, with doubts about the exact prospects for weather in South America, where dryness is setting back




crops, putting pressure on prices.

"Rain is expected to evolve over the weekend, relieving crop stress," Luke Mathews at Commonwealth Bank of Australia said.

"However, forecasters seem divided on how much rain is expected." And of course, "if the rain disappoints, grain prices are likely to rally",

'Relief by the weekend'

At Australia & New Zealand Bank, Paul Deane said that "around 25% of Argentina's corn and soybean belt were disappointed with last week's rain.

"But these areas could see relief by the weekend. One model points to southern Cordoba receiving 25-100mm of rain over the next five days."

Weather service put the outlook so: "This weekend is not looking like a major rain event" for central, eastern and northern Argentina.

It will instead bring "moderate decent rains - something like 60% coverage of 0.50 to 1.50 inches", with rainfall coming to parts of dry southern Brazil too.

'Early corn harvest is down'

Sure, whatever the weather, it is too late to help some farms, with damage done to corn by last month's heat, and some crop already in the barn.

"Word is the early corn harvest in Brazil is down over last year, but the corn being harvested is in the driest areas thus far," Mike Mawdlsey at US broker Market 1 said.

But that was not enough to extend the rebound in corn prices, with the grain facing an extra setback in the US too – fallen margins for ethanol plants who consume roughly 40% of the American crop.

"Ethanol is trading below $2.00 a gallon in many Midwest locations," Brian Henry at Benson Quinn Commodities noted.

"Ethanol profits on the spot market have slipped considerably since November.

"Best case scenario indicates that ethanol producers could be able to scratch out 5-10 cents of profit [per gallon]. There are likely many instances of ethanol producers losing in the neighbourhood of 10 cents."

'Weak fundamental picture'

Corn for March stood 0.25 cents lower at $6.03 ¾ a bushel, while soybeans, which being later to develop can yet see substantial improvement from rains, dropped 0.5% to $11.78 a bushel, also for March.


, which is torn between abundant world stocks and the high price of corn, to which it usually trades at a reasonable premium, dropped 0.4% to $6.02 ½ a bushel in Chicago, and by 0.7% to $6.68 ¼ a bushel in Kansas.

CBA's Luke Mathews flagged "wheat's weak fundamental picture, headlined by the US Department of Agriculture's forecast that world wheat stocks will rise to 210m tonnes in 2011-12".

News of an upgraded grains harvest in West Australia, to a record, did little to bolster prices.

Oil slips


, palm oil

moved lower too, feeling the softness from elsewhere in the oilseeds complex, soybeans. Kuala Lumpur's April contract shed 0.5% to 3,147 ringgit a tonne.

A poll by Reuters showed analysts forecasting a dip in palm oil prices this year to an average of 3,000 ringgit a tonne, from a record 3,237 ringgit a tonne in 2011.

New York


found the momentum of the last session hard to keep, despite the technical fillip of closing over its 100-day moving average for the first time since mid-September.

The March lot fell 0.6% to 98.19 cents a pound.


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