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Morning markets: US budget fears keep a lid on commodities

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The benign macro mix which supported farm commodities in the last session – reduced concerns about US debt and a falling


– reversed on Wednesday.

The dollar, at risk of hitting three-year lows, rebounded a smidgen, so making dollar-denominated assets less appealing to buyers in other currencies.

And the US fears were evident in a drop of 0.5% in Tokyo's Nikkei share index.

Risk assets needed a good story to drag themselves higher. And some, indeed, had one.


, for instance, made ground thanks to a strike at the world's biggest mine for the metal, Chile's Escondida site.

China back in buying mode?

But not all farm commodities did.


managed gains in Chicago, helped by a report from Oil World, the analysis group, that China has started ramping up imports again, to 5.2-5.3m tonnes in July, from 4.3m tonnes last month – and returning to year on year growth.

There has been some debate about exactly when China, the top soybean importer, will need to return to buying to provide feed for its revived hog industry, and when a cap on vegetable oil prices which has depressed crushing margins will be lifted.

Chicago's November soybean contract added 0.4% to 13.88 ¾ a bushel as of 07:20 GMT (08:20 UK time).

With Oil World also foreseeing an uptick in Chinese purchases of

palm oil

, the vegetable oil added 0.5% in Kuala Lumpur to reach 3,135 ringgit a tonne,

'Further crop downgrades'

And in New York,


knitted enough of a story to make further headway too, adding 1.4% to its close to the last session up the exchange limit, and so reaching 102.20 cents a pound.

"In our view, the cotton market may rise further from here, supported by the probability of further crop downgrades in the US," Luke Mathews at Commonwealth Bank of Australia said.

Agriculture in Texas, America's top cotton-producing state, has been hurt by the worst drought since records began in 1895.

That said, Mr Mathews urged some caution: "Increased cotton production in other regions, most notably India, China and Pakistan, may offset the US production losses.

"Global physical cotton demand must also re-emerge for prices to push higher."

'Not as threatening'

However, grains lacked fresh impetus, with the US weather concerns which have supported


, and therefore wheat, still present but not necessarily deteriorating for now (depending on which forecaster you listen to).

"Rains are on track to hit the northern Corn Belt through to the weekend but Illinois, the most stressed of the major corn and soybean states, will mostly miss out on the heavy rain," Paul Deane at Australia & New Zealand Bank said.

"Net drying across the southern Corn Belt and northern Mississippi Delta could further worsen conditions."

Technically for corn, "the key for another leg up would be a close over $7.00 a bushel" for Chicago's December contract, Mike Mawdsley at Iowa-based broker Market 1 said.

"But for the moment weather does not look be as threatening."

The December lot eased 0.2% to $6.88 ¼ a bushel.

Tour results

And with that,


struggled too, easing 0.1% to $6.93 a bushel for September delivery in Chicago, with upbeat early results from the Wheat Quality Council tour of US spring wheat farms also providing pressure.

"The tour has [North Dakota's] yields as slightly better than expected, but developing slower than average," Lynette Tan at Phillip Futures in Singapore said.

In Minneapolis, closer to the action, Brian Henry at Benson Quinn Commodities noted that "early reports show fields scouted on the southern route between Fargo and Mandan have the potential to yield nearly 50 bushels per acre".

However, latest reports have indicated some deterioration in that rosy scenario, helping Minneapolis hard red spring wheat stand steady at $8.39 a bushel.


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