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Morning markets: Hollande victory sends ag investors fleeing

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French voters may like the idea of having Socialist Francois Hollande as their president, but investors don't.

Mr Hollande has pledged to renegotiate the pact for greater financial discipline among eurozone countries, adding that it was "not for Germany to decide the future of Europe".

The idea of deceleration in the austerity drive which markets see as crucial for the eurozone to get its debts under control put the frighteners on risk assets in early deals on Monday.

Shares

tumbled by 1.6% in Seoul, 2.2% in Singapore and Sydney, and 2.8% in Tokyo, and opened some 1.8% lower in Paris and 2.2% down in Frankfurt. (London markets are closed on Monday for a national holiday.)

In classic risk-off fashion, the safe haven of the

dollar

rose 0.5% against a basket of currencies, further reducing the appeal of assets such as dollar-denominated commodities, making them less competitive to buyers in other currencies.

Oil

continued its downswing, with Brent crude standing down 0.7% at $112.40 a barrel, and at one point hitting $110.34 a barrel, its lowest since late January.

'Shorts getting squeezed'

And agricultural commodity markets too suffered losses – with one notable exception, Chicago's May

corn

contract, which edged 0.1% higher to $6.63 a bushel as of 09:10 UK time (03:10 Chicago time).

The lot was helped by the continuing strength in the US cash market as buyers compete for supplies which, for old crop at least, are scarce.

"Old crop cash and futures shorts appear to be getting squeezed as the producer continues to be a relatively tight holder of old crop physical corn," Jon Michalscheck at Benson Quinn Commodities said.

"A rather tight old crop corn basis is also developing in the West and that is preventing any meaningful flow of stocks back into the tighter cash regions of the east and centre Gulf."

Furthermore, technically, the May contract's close to the last session "provided a positive price reversal up for that contract, but it has only six days left to trade with it expiring on May 14."

'US corn is expensive'

But the better-traded July lot shed 0.7% to $6.15 ¾ a bushel, feeling the risk-off trend, besides the boost to US grain supplies being offered by the thought of an early US winter

wheat

harvest.

Indeed, buyers are showing a greater willingness to show muscle on supplies further ahead, with the Korea Corn Processing Industry Association over the weekend dropping buying plans, following a tender for 55,000 tonnes.

"US corn is expensive to South American corn, Black Sea corn and wheat, which could help ease the export demand," following the bumper end to April, Terry Roggensack at Hightower Report said.

'Inching up yield projections'

And new crop corn came under fresh pressure from the benign conditions for the crop.

The weekend bought rain for many states, including notably Iowa, the biggest corn producing state, besides North and South Dakota and Nebraska.

But precipitation is currently being seen as beneficial, in providing moisture for crops, rather than being cursed for slowing seedings – with the US planting pace near-record fast as of a week ago. (Fresh data will be released late on Monday.)

"An excellent weather outlook plus the early plantings has traders inching up their yield projections for the new crop season," Mr Roggensack said.

Paul Deane at Australia & New Zealand Bank said: "With planting progressing at an historically quick pace and favourable weather thus far, all signs still point to a very large US corn crop come September."

December corn dropped 1.5% to $5.16 ½ a bushel, if not so far testing Friday's 13-month low of $5.15 a bushel.

Corn vs soybeans

Still, that lost the grain further ground against

soybeans

in what is left of the battle for acres in the US.

The new crop November soybean contact fell, but by 1.0% to $13.52 ½ a bushel, taking the soybean:corn ratio to 2.62:1, one of its highest of the last year.

The oilseed continued to feel some pressure from an upgrade by Informa Economics on Friday to 75.8m acres in its estimate for US soybean sowings this year, putting a rise in seedings on the cards from last year.

'Acreage problem is not solved'

OK, that may not be enough to solve the squeeze on a

soybean

market tightened by poor South American harvests.

"We estimate that an acreage swing of 2.8m-3.0m acres would be required to avoid significant demand rationing and build US ending stocks," Mr Deane said.

"On Informa's numbers, the acreage problem is not solved."

Still, investors were more wary of buying the oilseed, given the fresh record high of nearly 254,000 in speculators' net longs in Chicago soybeans, questioning how much unfulfilled buying is left out there.

July soybeans fell too, by 0.8% to $14.66 ¾ a bushel.

'Revising higher'

Wheat

dropped as well, by 0.5% to $6.06 ¼ a bushel for July, amid growing ideas for the forthcoming US harvest.

"Most forecasters are revising higher their US wheat production forecasts," Luke Mathews at Commonwealth Bank of Australia said, noting the catalyst of Thursday's US Department of Agriculture Wasde crop report.

Some crops abroad have improved too.

"There are still concerns with questionable crop conditions in the Black Sea region but European crops appear to have improved in the past few weeks," Hightower's Terry Roggensack said, adding that he could not "rule out another leg down [in prices] into harvest".

'Significant headwind'

Among soft commodities,

cotton

started week too, sapped by the broader economic unease.

"The recent weakening in the US economy, highlighted by the most recent weakness in US jobs data, combined with ongoing uncertainty in Europe presents a significant headwind for global cotton demand and prices," Luke Mathews at Commonwealth Bank of Australaia said.

Cotton, as an industrial commodity, is seen as more vulnerable to macro-economic factors.

New York cotton for July dipped 0.3% to 87.74 cents a pound.

Economy worries

And, in Kuala Lumpur,

palm oil

, fresh from its worst weekly loss since November, notched up a further decline, losing 0.4% to 3,345 ringgit a tonne.

"Investors remain worried about the health of the global economy," Ker Chung Yang at Phillip Futures said, flagging the importance of monthly Malaysian palm data due this week.

"Traders are now watching output numbers in second-ranked producer Malaysia for more clues on April palm oil stock levels."

By Agrimoney.com

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