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Morning markets: SA rain puts a chill on grain price rally

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Rain fell. And that put a chill on the grain price rally.

While temperatures on Tuesday proved "beastly hot" in large swathes of South America's drought-hit corner of Argentina-southern Brazil-Paraguay, reaching 109 degrees Fahrenheit according to WxRisk.com, a spell of rain relief has begun.

And it looks like it will reach a wider area than was originally forecast.

Latest models show a northward track of these storms that is "not what was expected and it will bring good rains into eastern Cordoba, Santa Fe and maybe even into western Entre Rios", WxRisk.com said.

"What is Important for you to see is that these storms have been moving due north and not to the north-west."

'Damage could be hard to salvage'

What the rains mean in terms of saving crops, well, many analysts have doubts, for

corn

especially, which has how just about finished the important pollination period - amid a heatwave.

"The rain may temporarily relieve crop stress, but total falls may be insufficient to change the medium-term drying trend, particularly given hot dry weather is to return next week," Luke Mathews at Commonwealth Bank of Australia said.

At Phillip Futures, Lynette Tan said: "We expect the rains in Argentina to only slightly pressure corn prices as crop damage could be hard to salvage at this stage."

Argentine

soybeans

still have time for redemption, Oil World said on Tuesday.

"The bulk of the soybean crop has not yet entered the reproductive stage and can therefore still recover if rainfall arrives on time," Oil World said.

'No-one will want to be short'

The

dollar

was hardly a help to dollar-denominated assets, edging 0.2% higher, and so reducing their competitiveness.

The firmness was attributed to euro doubts ahead of a European Central Bank policy meeting, and Spanish debt sales.

And also overhanging crop markets was the prospect tomorrow (Thursday) of the US Department of Agriculture's latest monthly Wasde crop report.

The series is a highlight of the agricultural commodities calendar, but especially so this time, when it will pronounce on South American crop damage, and potential impact on the US balance sheet.

"No-one will want to be short [on grains] as South American weather problems look to take ending stocks even lower in the months ahead," Tim Hannagan at broker PFGBest said.

Still, "Wednesday, look for traders to even up positions before the close, ahead of the report".

Sowings data

In Chicago, this meant corn for March adding 0.1% to $6.52 ¾ a bushel as of 08:40 GMT, after trading lower in early deals.

Soybeans remained in negative territory, down 0.2% for March delivery at $12.30 a bushel.

Chicago

wheat

, not so directly exposed to the South America weather issue, also eased, falling 0.2% to $6.38 ¼ a bushel for the March contract.

Wheat does face individual USDA data on Thursday, on winter wheat sowings, expected to show a rise to 40.6m acres.

With the extra area, "despite concern about dry conditions in the southern plains, I do not expect this estimate to offer much support", Brian Henry at Benson Quinn Commodities said.

'Eye on export trends'

Elsewhere,

palm oil

for March added 0.3% to 3,224 ringgit a tonne in Kuala Lumpur, despite modestly bearish Malaysian data out on Tuesday.

"Going forward, the market will keep an eye on export trends for signs of slowing demand for the tropical oil," Ker Chung Yang at Phillip Futures said, noting cargo surveyor data showing a 16% slip in Malaysian palm exports in the first 10 days of January.

In Tokyo,

rubber

set course for a third successive day of recovery, adding 0.6% to 278.50 yen a kilogramme, helped by firm prices of oil, the source of synthetic alternatives.

Yesterday's Chinese trade data also showed the country importing 2.1m tonnes of (natural) rubber last year, a 13% rise on 2010.

Rubber prices remain well below 2011 highs, of 535.70 yen a kilogramme, despite this week's revival, a fact expected to prompt protests this week by Thai rubber growers.

By Agrimoney.com

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