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Morning markets: Japan downgrade casts cloud over markets

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Could December


set a new contract high? Could


secure their first close over $14 a bushel since early June? Could


end higher for the 11th time in 12 trading days?

The odds of any of these outcomes lengthened (although December corn at least matched its July top in very early deals) after Moody's snatched the spotlight from rival ratings agency Standard & Poor's (the one which downgraded the US) by downgrading Japan's sovereign debt.

The ratings cut by one notch to Aa3, blamed on Japan's high levels of debt and sluggish economy, undermined Asian


, sending Tokyo's Nikkei index down 1.1%, but with Seoul stocks losing 1.2% and Shanghai stocks down 0.4% in late deals.

And this after Wall Street had set an upbeat tone by closing up 3.0%.

Tour results

The more "risk off" feel was evident in a slight tick higher in the


and a 0.4% easing to $85.07 a barrel in New York



And, among farm commodities, it undermined a firm start to send most crops slightly lower, although with the news feed still taking a bullish bent, the retreat was not substantial.

The latest results from the ProFarmer Midwest crop tour showed crops in Nebraska likely to fare worse than last year, with the US state's corn yield pegged at 153.70 bushels per acre and, for soybeans, pod counts down, if remaining above the three-year average.

(Nebraska is one of the states deemed, by US Department of Agriculture data, to have fared best this year, with 76% of its corn in "good" or "excellent" condition, compared with a national average of 57%.

For soybeans, 79% of the Nebraska crop is rated good or excellent, 20 points above the US average.)

'Less-than-uniform crop'

"The tour continues to find wide variability in soybean crop with maturities lagging in both western and eastern halves due to late planting," Benson Quinn Commodities said.

In corn the tour is reporting a "less-than-uniform crop, and the likelihood that their final analysis will also be lower also has the bears somewhat nervous".

It is a big day today for the tour, which pronounces conclusions on Friday, as it moves into the top producing states of Illinois and Iowa.

Early harvest results

Still, as Mike Mawdsley at Iowa-based Market 1 noted, "the $64,000 question is, how much less could we be than last year" when the harvests come in?

Some early corn results are emerging, with whisper coming in of yields 20-30 bushels an acre below last year's figures.

"These early harvested acres most likely died, therefore early results may not show a true picture," Mr Mawdsley cautioned.

"But the general thought is, we aren't as good as last year."

Yield numbers

Which is what analysts at Commodity Weather Group believe too, in downgrading their forecast for the US corn yield to 149 bushels per acre, citing worse prospects for northern US states, and putting themselves among the most bearish forecasters.

Overall, "taking into account August weather conditions, yield talk is now closer to 150 bushels an acre", Paul Deane at Australia & New Zealand Bank said.

December corn stood 0.3% lower at $7.41 ½ a bushel as of 07:30 GMT (08:30 UK time).

Chicago's November soybean lot shed 0.1% to $13.95 ¼ a bushel, its retreat slowed by some support from demand ideas too.

"As we are moving into the last quarter of the year, with more festivals ahead, we would expect the demand on cooking oil to pick up and soybeans is likely to benefit from it," Ker Chung Yang, at Phillip Futures, said.

'New rains stopped harvest'

As for


futures, they continued to get some help from Tuesday's Egyptian tender result showing a rise in wheat prices from Russian, typically regarded as the bargain basement provider, besides crop setbacks on both sides of the Atlantic.

The rainfall woes to Germany's harvest, threatening the quality of a crop normally very largely of milling standard, continue to make a bit of a splash on both sides of the Atlantic, with Benson Quinn in Minneapolis noting that "wheat is gaining support from wet weather damaging a ripe German wheat crop".

And further rains are due, Agritel, in Paris, noted, slowing further the harvest of the last 20% or so of the crop, mainly in the north of Germany.

"New rains stopped harvest yesterday," the consultancy said.

"Rains should last until the end of the week. Quality will therefore be damaged."

Chicago wheat for September eased 0.3% to $7.55 a bushel, with Minneapolis spring wheat faring worse, down 0.5% at $9.46 a bushel, amid ideas that trade buyers have filled supply lines for now.


Random walk'

There were some positive crops around, notably


, which continued what some traders have termed something of a "random walk" by adding 1.6% to 106.90 cents a pound in New York, for December delivery.

The fibre too is expected to see some uptick in demand from the Asian festival season.

And, in Tokyo,


added 1.1% to 361.50 yen a kilogramme for the benchmark January lot, despite the slight easing in crude prices, which matter given that they are the basis for synthetic alternatives.

"Fundamentals are considered in balance, with China gradually replenishing stockpiles amid a slowing of supplies due to rain in southern Thailand and reduced tapping ahead of end-of Ramadan holidays in major producing countries," Phillip Futures' Mr Ker said.


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