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Morning markets: JPMorgan losses add to weight on ag prices

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Meanwhile, back in the outside world…

After long-anticipated US Department of Agriculture data monopolised investors' attention in Chicago in the last session, external markets returned to the fore on Friday.

And that was not a factor positive for prices, after JPMorgan unveiled a surprise $2bn trading loss on credit derivatives trading, a result Jamie Dimon, the bank's chief executive, blamed on "errors, sloppiness and bad judgement" and warned "could get worse".

Risk-offness was in the air, with

shares

falling 0.6% in Shanghai and Tokyo, and by 1.4% in Seoul.

The safe haven of the

dollar

gained 0.2%, reducing further the appeal for dollar-denominated assets, including many agricultural commodities, to investors buying in other currencies.

Fibre falls

With Brent

crude

falling more than 1% back below $112 a barrel, and London

copper

dropping too, it was not an environment conducive to strength in agricultural commodities.

Not that

cotton

needed much encouragement to fall anyway, having closed the last session down the exchange limit in New York, pressed by an uber-bearish outcome from Thursday's USDA Wasde report, which included the first full crop estimates for 2012-13.

These included an estimate of world cotton inventories ending the season at a record 73.8m bales, including 4.9m bales in the US, above market expectations of a 4.5m-bale figure.

Market dynamics snafu

"The USDA expects a tepid recovery in mill demand resulting in global ending stocks of raw cotton to build for the 3rd consecutive year by the end of 2012-13," Australia & New Zealand Bank analyst Paul Deane said, flagging the problem which Chinese hoarding has posed to the market's sense of equilibrium.

"In what looks like a well-supplied market, prices should be signalling a large pullback in global area planted.

"But prices at origin have been supported by Chinese mills' desire to acquire cheaper overseas supply than compete with the highly-priced government reserve cotton purchase programme."

Cotton for July tumbled a further 4.4% as of 09:00 UK time (03:00 Chicago time, 04:00 New York time) to 78.22 cents a pound, hitting 77.16 cents-a-pound earlier, the lowest for a spot contract since mid-July 2010.

(At that point it was down more than 4.0 cents, enabled by a temporary increase in trading limits following the last session's limit-down close.)

Between the lines…

These losses were bigger than anything in Chicago, where it was actually the star of the show in the last session,

soybeans

, which led the decline.

The oilseed was favoured by Wasde estimates of a drop to 145m bushels in US inventories as of the close of 2012-13 a figure which, when compared to consumption, comes in at 4.40%, the lowest in 47 years.

However, bulls' joy at the figure has been tempered by the idea that it is based on a false premise – that US farmers will grow only the 73.9m acres with the oilseed indicated by a USDA report in March.

However, Kim Rugel at Benson Quinn Commodities noted that "private analysts are forecasting increases in planted acres in range from 1.5m-2.5m acres based on increased double-crop soybeans", ie soybeans planted as a follow-on crop after winter wheat, which is in for an early harvest in the US this year.

"The trade is already upping its soybean production estimates as prospect for increased acres looms large."

Soybeans for November fell 1.1% to $13.43 ¾ a bushel, with the old crop July lot falling in line to $14.39 ½ a bushel.

'Pressure prices significantly'

Of course, extra soybean acres are also likely to come from

corn

, which provided some support for the grain despite the external weakness and dismal Wasde numbers.

These included an upgrade to the estimate for stocks at the close of 2011-12, with a further increase of more than 1bn bushels over 2012-13, thanks to a forecast of a record harvest

"And world corn inventories are forecast to rise to their highest level since 2000-01," Luke Mathews at Commonwealth Bank of Australia said.

"If realised, the forecast increase in corn inventories will pressure global grain prices significantly lower over 2012-13."

Yield question

Still, if some US corn is switched to soybeans…

And there were also question marks over the USDA's yield assumption too, of 166 bushels an acre.

"The rationale of a trend yield plus a few extra bushels per acre for the early plant is a valid approach," ANZ's Paul Deane said.

"But the reality is that a yield assumption of 166 bushels an acre, the USDA is by default forecasting benign July temperatures in the mid-west and adequate soil moisture into August."

Which is not a given. December corn eased, but by a more modest 0.6% to $5.04 ¼ a bushel, while the old crop July lot fell 0.7% to $5.83 ¼ a bushel.

'Looking both ways'

As for

wheat

, it continued a pattern of somewhat indecisive behaviour, or as Darrell Holaday at Country Futures put it, "standing and looking both ways before crossing the street".

The grain actually fared relatively well, from a bulls' perspective, in the Wasde, which forecast a significant drop in world inventories in 2012-13.

But these stocks, at 188m tonnes, will still remain ample, leaving the grain partial to movements in corn, which has been the prop of the grains complex these past months.

"Despite the forecast decline in wheat inventories in 2012-13, they remain forecast 30% higher than the 2004-08 average of 144m tonnes," Commonwealth Bank of Australia's Luke Mathews said.

Chicago wheat for July, the best-traded lot, dropped 0.2% to $5.99 ¼ a bushel a bushel. Kansas hard red winter wheat for July dropped 0.2% to $6.16 ¾ a bushel.

By Agrimoney.com

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