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Morning markets: ag commodities succumb to fears for Greece

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The growing risk-off feeling evident in financial markets in the last session, and blamed on fresh eurozone jitters, extended into Wednesday.

While some of the eurozone concerns relate to the election to French presidency of Francois Hollande, on an austerity-lite package which many investors believe spells trouble, the fears are centred on debt-laden Greece, which is struggling to form a government days after elections.

"As long as political uncertainty continues, the Greek presence in the euro area in its current form could be seen to be at risk," Bank of America Merrill Lynch said.

Wednesday brought saw the knee-jerk risk-off reactions of a rising

dollar

, up 0.2% against a basket of currencies, and lower

shares

, which dropped 0.9% in Seoul and 1.5% in Shanghai and Tokyo.

Commodities weakened too – including grains, although, with a key US Department of Agriculture report due on Thursday, they managed again to display some backbone.

'Prices could be choppy'

Soybeans

, again, suffered losses, continuing to feel the pressure of speculators' huge net long positions at a time when fast money is liquidating risk assets of all flavours, and when the USDA's forthcoming Wasde crop briefing is causing an extra reason for closing positions in grains.

The Wasde will offer the first estimates for world crops in 2012-13, and its outcomes have attracted a wide range of forecasts.

Eg, for US soybean inventories at the close of the season, estimates for the USDA figure range from 87m bushels to 250m bushels.

"The wide ranges give us the opinion that prices could be choppy through the report on Thursday," Paul Georgy at broker Allendale said.

'Highly prone to a downward correction'

As of 08:40 UK time (02:40 Chicago time) at least, the choppiness was firmly on a down swing, sending the July contract down 0.2% to $14.35 a bushel.

The new crop November lot was 0.4% lower at $13.35 ¼ a bushel.

Paul Deane at Australia & New Zealand Bank noted "little fundamental news to spark the sell-off in soybeans and

soymeal

, which means it's usually put down to fund selling.

"Speculative net longs in soybeans and meal were 20% and 42% of open interest respectively as of last Tuesday, so these were highly prone to a downward correction."

July soymeal dropped 0.3% to $416.00 a short ton, but unlike soybeans themselves, stayed above its 20-day moving average, at $414.50 a short ton.

'Resumption of active plantings'

But this time, grains joined in.

Corn

for July fell 0.2% to $6.21 ¾ a bushel, while the new crop December lot dropped 0.4% to $5.26 a bushel, sapped by the prospect of further rapid progress in sowings.

"Drier weather this week in the US Midwest will allow resumption of active corn and soybean plantings following several days of crop-friendly showers that have further boosted 2012 crop prospects," Lynette Tan at Phillip Futures in Singapore said.

"Weather for much of the country looks favourable, but most areas have some drying out to do before the planters start rolling again," said Brian Henry at Minneapolis-based Benson Quinn Commodities.

'Looking for confirmation'

Not that farmers, and bears, have it all their own way, and indeed cold weather has slowed germination of corn, despite the rapid sowings, as Gail Martell pointed out on Tuesday.

But warmer, and drier, weather may be on its way, with WxRisk.com forecasting much-above -normal temperatures, and below-normal rainfall, especially in northern US areas in the six-to-10 day outlook.

And while there is still speculation of fresh Chinese orders of US corn, these have yet to be proven true.

"Expect the rumours about additional business to continue, but the trade is also going to be looking for confirmation of such activity," Benson Quinn's Brian Henry said.

'Plenty of talk of dry conditions'

With corn fading,

wheat

dropped too.

Sure, as Mr Henry noted, "there is plenty of talk of dry conditions in the Black Sea region and the trade is also monitoring dry conditions in northern China".

But there is enough confidence around about the US crop, and enough of the grain still in bins from last year, to prevent concerns from igniting for now, although wheat is prone to bouncing on covering of speculators' sizeable net short position.

Chicago wheat for July lost 0.5% to $6.12 a bushel.

Rubber loses tread

Macro-economic jitters were evident in other agricultural commodities too, notably in

rubber

which, as a non-food raw material, is often more in-tune with the general markets mood.

At Phillip Futures, Ker Chung Yang highlighted "concerns that the financial crisis in the European Union will crimp demand" for rubber, which lost 3.7% to 293.10 yen a kilogramme in Tokyo, for the benchmark October contract.

That was the first close since mid-January for a benchmark contract below the psychologically important level of 300 yen a kilogramme.

While prices of the key USS3 rubber grade have held at about 110 baht a kilogramme in Thailand, the top exporter, this is "only because of the first direct market intervention by the Thai Rubber Estate Organization since the federal government approved a price-support plan in January", Mr Ker said.

Palm dips

And in Kuala Lumpur,

palm oil

lost 0.2% to 3,344 ringgit a tonne.

Besides the weakness elsewhere in the oilseeds complex, in Chicago soybeans, the vegetable oil is particularly vulnerable to goings on in the eurozone, a major importer.

Furthermore, there were some concerns over key monthly data due on palm oil too, from the Malaysian Palm Oil Board, although investors are expecting a 7.0% dip in Malaysian palm inventories, month on month, to 1.8m tonnes.

By Agrimoney.com

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