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Morning markets: US data, eurozone debt weaken crop prices

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For the first time this year, crops started the week on the back foot – even New York raw

sugar

, on its first outing with an earlier start.

In fact, risk assets in general weakened in early deals, sapped not just by Friday's weaker-than-expected US economic growth data for the fourth quarter of 2011, but also by lingering eurozone debt concerns.

Monday brings the first meeting this year of European Union leaders looking at the debt crisis, and expected to agree a permanent rescue fund for the eurozone, and on rules over balancing national budgets.

Furthermore, news is expected on Greek talks with creditors over a debt swap agreement viewed as vital to avoiding a disorderly default.

Month end

The result was a risk-off pose, complete with a revival in the

dollar

, which regained 0.3% as of 08:45 GMT against a basket of currencies, creating an extra headwind for dollar-denominated risk assets by making them less affordable to buyers in other currencies.

Brent

crude

was 0.2% lower, fighting to stay above $111 a barrel, while London

copper

eased too, besides the losses in

shares

, which opened more than 1% lower in London, having notched up comparable losses in Seoul and Singapore.

And, for agricultural commodities, the calendar was seen as providing an extra hurdle in the close-of-the-month, periods seen as often fostering softness as funds tidy up books and potentially raise cash.

"The two days until the end of the month could bring in some additional consolidation," broker Benson Quinn Commodities said.

China returns…

Sure, what the calendar also brought was the return of China, a huge buyer of commodities including rubber and soybeans, from its new year holiday period.

"China returns to market and with weak dollar and cheap ocean freight, market will be looking for new sales," Benson Quinn said.

"The industry will be closely watching the Chinese sector this week as it returns from its New Year festivities," Luke Mathews at Commonwealth Bank of Australia said, thinking in particular of

cotton

, of which China is the top importer, besides being the biggest producer and consumer too.

In fact, New York cotton was one of the few agricultural commodities to show gains, up 0.4% at 96.00 cents a pound for March, helped by a 0.7% rise to 21,495 yuan a tonne in best-traded May cotton on the Zhengzhou exchange.

Weak launch

For sugar, the Zhengzhou contract was weaker, down 0.3% at 6,520 a tonne for September delivery, providing a weak backdrop for New York raw sugar on its first day of extended trading hours, with opening made two hours earlier at 06:30 GMT – to allow arbitrage with the Zhengzhou.

New York's March lot eased 0.2% to 24.17 cents a pound, if in weak volumes so far.

Chinese contracts for

corn

did better, showing gains of 1% plus, but this was viewed as catch up on last week's firm gains in Chicago.

In Chicago itself, prices could not maintain forward momentum.

'Four-inch rains'

Besides the macro-economic environment, corn and soybeans faced extra pressure from the prospect of rains in drought-tested Argentina on Tuesday, even if weather models cannot agree exactly where the precipitation will fall.

"The European model shows more coverage with the rain affecting more of Buenos Aires Santa Fe Cordoba then up into north west Argentina and western Paraguay - 70% coverage of one-to-three inches," weather service WxRisk.com said.

"The model has a concentrated band of four-inch rains covering the northern half of Santa Fe into Chaco."

The GFS model, however, foresees one-inch rains over central Argentina, with "a few small areas of rainfall amounts of two or three inches", WxRisk.com said.

"The GFS model also has an area of four-inch-plus rains but that area of heavy rains is centred over far north west Argentina."

Furthermore, another cold front is expected in the six-to-10-day outlook.

Prices ease

This is good news for farmers, especially growers of

soybeans

, which as a later developing crop have more scope for recovery from rains.

And, indeed, it was soybeans got off to the worst start among Chicago's big three, shedding 1.0% to $12.07 a bushel for March.

Corn dropped 0.7% to $6.37 ¼ a bushel, still feeling more support from South America, besides the strong US cash market.

"Too, most estimates I read, in regards to the Argentina corn crop, are in the 20m-21m tonnes area," Mike Mawdsley at Iowa-based Market 1 said.

"If true, the US Department of Agriculture will have another reason to ratchet up our corn export situation."

On Friday, the Buenos Aires grains exchange estimated the Argentina corn harvest at 22m tonnes, a forecast "down steeply from early expectations from the government of up to 30mi tonnes", Lynette Tan at Phillip Futures noted.

'Fierce winter'

Wheat

did best, edging 0.4 lower to $6.44 ½ a bushel for March delivery, gaining some support from the cold weather in the former Soviet Union, which looks set to continue, posing the threat of winterkill.

"A fierce winter has hit Russia's southern wheat growing regions, fuelling speculation on a short supply of wheat from the country," Ms Tan said.

From Kiev, Agritel said that "temperatures could slide below -30 degrees Celsius in Central Ukraine this week, and below -20 degrees Celsius in the south where the snow cap is thinner".

"No further snowfalls are forecast in Ukraine" to protect crops against frost, although "in Russia the snow cover should increase, especially in Krasnodar", an important southern grains region.

Russia's official weather service has estimated that temperatures could fall 10-15 degrees Celsius in southern Russia.

Damage estimate

As for the extent of the threat, Australia & New Zealand Bank said that the freeze" could damage 15-25% of the Ukraine winter wheat crop where snow cover is inadequate".

In southern Russia, "potential damage is expected to be more isolated, with just 5% of the crop at risk".

By Agrimoney.com

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