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Morning markets: US accord, China storm foster crop recovery

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Phew. An eleventh-hour deal between Democrat and Republican leaders on the US debt limit (which still has to be voted through by both Congress and the Senate) lent a cheerier air to financial markets on Monday.

As did Chinese manufacturing data showing the pace of growth in activity eased last month, but not by as much as economists had expected.

Tokyo shares closed up 1.3% on the deal (which lifts America's $14,300bn debt ceiling and cuts some $2,400bn from the deficit), and West Texas Intermediate

crude

added 1.5% to get back above $97 a barrel, as of 07:20 GMT (08:20 UK time).

Meanwhile,

gold

, which hit a record $1,623.30 an ounce on Friday, raised by fears for a deal, fell some 1%.

'Supportive of prices'

And farm commodities had extra reasons to lure investors too.

One was the date. The beginning of the month is often seen as a period when extra money comes into the markets, just as the end of the month is viewed as a time of withdrawal.

But another was less technical - the weather – which has brought new heat to some parts of the US, with temperatures topping 100 degrees Fahrenheit in parts of Kansas, Oklahoma and Texas over the weekend, although it does not look like being as dangerous for yields as last month's heatwave.

"Some of the heat has reached into the southern portions of the eastern Corn Belt and western Corn Belt," WxRisk.com said

"But the northern areas are unaffected because the heat dome is situated much further to the south than what we saw in the middle of July."

Paul Deane at Australia & New Zealand Bank said: "Weather developments are supportive of prices with most of Illinois and India forecast to receive below-normal rainfall over the next week.

"Weather developments during August and early September will be crucial in determining spring crop yields."

'Well-confirmed quality fears'

And it isn't just the US where weather is being a little inclement, with parts of Europe wanting dry weather for harvest getting (more) rain.

North eastern areas of Germany, the European Union's second-biggest wheat producer, "will continue to see showers over the coming days", Jaime Nolan at FCStone said, with rains expected in northern parts of top-ranked France from Wednesday.

Poland, the third-ranked winter wheat grower, "continues to see no let-up in the constant rainfall seen this last week, with the next one-to-five day forecast calling for further rains and adding to the already well-confirmed quality fears there".

Meanwhile, on the other side of the globe in Australia, "rainfall is required throughout New South Wales and Queensland grain-growing regions, otherwise yield potentials will decline sharply once seasonal warming commences in the coming few weeks", Luke Mathews at Commonwealth Bank of Australia warned.

'Severe hurricane'

And that is before getting to what could be a serious event "the potential for a severe hurricane in east central or north east China".

"This has the potential to cause major damage to large portions of the agricultural areas in the north China plain and central and southern Manchuria," WxRisk.com said.

"Significant damage here would of course have a major impact upon China's corn and soybean crop in some areas and therefore would impact China's demand slash import for US grains to replace the lost crop."

Price gains

The impact on grains was to revive prices which suffered heavy losses on Friday as the US debt talks dragged on.

December

corn

, the best-traded contract, rebounded 1.0% to $6.75 ¼ a bushel in Chicago.

September

wheat

soared 1.4% to $6.82 a bushel.

And

soybeans

gained to $13.62 ¾ a bushel despite Chinese estimates of imports of the oilseed reaching only 3.2% this month, down 34% year on year and well below the 5.0m tonnes expected to show up in data for July.

In Kuala Lumpur,

palm oil

rose too, up 0.6% at 3,113 ringgit a tonne, despite the Chinese data forecasting a drop to 259,000 tonnes in imports this month, down from more than 400,000 tonnes in July.

India upgrade

Back in the US,

cotton

signally bucked the trend, shedding 1.3% to 100.47 cents a pound in New York for December delivery, despite being one commodity which might have been expected – as an asset more dependent than foodstuffs on economic growth - to be especially helped by a US budget deal.

However, CBA's Mr Mathews noted reports that "India will allow unrestricted cotton exports for the next two months because of a local supply surplus".

Authorities in India, the second-ranked producer, last week revised their forecast for the 2010-11 crop 4% higher to 32.5m bales, while hiking their estimate for stocks to 5.25m bales, from 2.75m bales.

By Agrimoney.com

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