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Morning markets: ag futures cautious as key crop data looms

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Will Slovakia derail the latest drive to resolve the eurozone debt crisis?

The cheer injected into financial markets by French and German expressions at the weekend of determination to avert debt disaster showed signs of wearing off on Tuesday, amid fears that it could be tripped up by a European Union minnow.

It is feared that Slovakia, with a population of 5.5m people and GDP of $120bn (cf Germany with 81m people and GDP of nearly $3,000bn) may yet dash plans for a European Financial Stability Facility at a vote later on Tuesday.

Such fears were reflected on

stock

markets

, with Europe's major indices opening lower.

And, key for commodities, they put a bit of life back into the safe haven of the

dollar

, which added 0.2% against a basket of currencies, so making dollar-denominated exports including raw materials less competitive.

Wasde ahead

Brent

crude

eased 0.2%, if remaining above $108 a barrel.

And grains were on the back foot too, continuing their weakness heading into the close of the last session.

Besides Slovakia, the prospect on Wednesday of the US Department of Agriculture's next benchmark monthly Wasde report is also injecting a note of caution.

Not that investors are expecting huge revisions at the bottom, inventory line, with a general expectation of improved yield hopes offset by ideas that the USDA will cut acreage estimates to account for flooding earlier this year.

'Wild price action'

However, many recent USDA briefings have had surprises up their sleeves – notably the September 30 grain inventory report which sent Chicago futures in both

corn

and

wheat

plunging 30%, and which is still having analysts scratching their heads.

University of Illinois agricultural economist Darrell Good is still terming an implied drop of one-third in feed (and so-called residual) use of corn over the summer "unreasonable".

His reason is "that the number of livestock fed was larger, average slaughter weights were about equal, implied feed and residual use of wheat was 45m bushels less, feeding of

soybean

meal was down 4-5%, and feeding of distillers' grains was only about 3% larger".

How to reconcile the data? Bottom line, as Mike Mawdsley at Market 1 warned, Wednesday's report "could see some wild price action".

Position squaring

The likely course for the market on Tuesday was to "focus on squaring positions", as Kim Rugel at Benson Quinn Commodities noted.

And while for wheat, that means covering short positions, given investors have so many bets on further price drops, for other crops squaring off can mean selling long positions and depressing prices.

So while Chicago wheat for December added 0.3% to $6.13 ¼ a bushel, as of 07:40 GMT (08:40 UK time), corn for December fell 0.4% to $6.02 ½ a bushel.

Soybeans for November added 0.5 cents to $11.77 a bushel, bouncing in and out of positive territory.

Crop upgrade

That said, there were some extra reasons to be negative on prices to, with Brazil's soybean sowings accelerating off the grid to reach 5% completed, compared with 3% a year ago, according to Celeres.

In Mato Grosso, 5.6% of soybeans were planted, compared with 1.7% a year ago, Imea, the state farm institute said.

Seedings have been helped by timely rains, amid growing thoughts that this La Nina will not be as damaging as the last.

Indeed, in Australia, where it is bringing regular, but not overabundant, rains, Commonwealth Bank of Australia on Tuesday lifted its estimate for the domestic wheat harvest, by 1.7m tonnes to 25.2m tonnes.

'Considerable progress'

And reports are still coming in of hefty weekend rains in southern Plains, where dryness has been holding back hard red winter wheat seedings, with some areas receiving six inches.

Benson Quinn said: "Expect the pace of hard red winter wheat planting to show considerable progress next Monday," when the USDA releases a weekly crop progress report.

In fact, this week's report has not been published yet, and is due later, after a delay for the Columbus Day holiday on Monday.

'Considerable discount'

In Asia,

rubber

for March added 1.6% to 319.60 yen a kilogramme in Tokyo, helped by fears for the flooding in Thailand, the top exporter of the tyre ingredient, besides getting support from the improved macro-economic sentiment.

And

palm oil

shed 0.3% to 2,784 ringgit a tonne for December, feeling the pressure of data on Monday showing Malaysia's inventories of the vegetable oil reached a 21-month high last month.

"Palm oil will need to maintain considerable discount to

soybean oil

until stocks show signs of abating," Victor Thianpiriya at Australia & New Zealand Bank said.

By Agrimoney.com

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