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Morning markets: ag futures revive as China fears subside

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Was that it?

The storm in agricultural commodity markets, which landed blows on the main Chicago crops in particular in the last two sessions, subsided on Wednesday, allowing some recovery in prices.

Helping at least slow the outward flow of the fund money which has been a particularly strong feature of ag markets of late was improved ideas on China.

Sure, BHP Billiton, the mining giant, sounded alarm bells on Tuesday over China's economy and its huge appetite for raw materials by warning of "flattening" demand in China for iron ore.

But

copper

, viewed as a major indicator of commodity market sentiment towards China, managed to recover on Wednesday, adding 0.7% in London in early deals.

China signals

Furthermore,

shares

showed small gains in Shanghai, even as stocks in other major Asian markets struggled to cope with China fears. Tokyo stocks ended 0.6% lower, and Seoul ones down 0.7%.

And, as a help to dollar-denominated assets, the

dollar

weakened too, falling 0.2% against a basket of currencies as of 08:50 GMT. Weakness in the dollar makes commodities priced in the greenback cheaper for investors buying with other currencies.

For Chicago crops, a further positive from other markets was at least a slowdown in a decline in crop futures in China which, as a huge buyer of the likes of

cotton

,

soybeans

and increasingly

corn

, is being increasingly looked at for signals.

On the Dalian exchange corn fell again, but only by a modest 2 yuan, leaving the May lot at 2,483 yuan ($393) a tonne, just under $10 a bushel, and the best-traded September contract at 2,468 yuan a tonne.

On the Zhengzhou, cotton eased 15 yuan for September to 21,355 yuan a tonne.

'Much-above-normal temperatures'

That is not to say the threat of selling has disappeared in Chicago.

Traders are still closely watching the US weather for the continuation of a benign trend which has seen unusual warmth, boosting hopes of a flying start to spring sowings, and rain where it is wanted, such as in the southern Plains, too.

"Much-above-normal temperatures and significant rainfall over the next week to 10 days in the US Midwest and Plains will boost crop prospects and aid growth of winter

wheat

," Ker Chung Yang at Phillip Futures, said.

"The forecast is even warmer in the 11-to-15-day outlook."

At Australia & New Zealand Bank, Paul Deane flagged how a "positive short term rainfall outlook in the US has weighed on prices".

Thai factor

In New York, raw

sugar

continued to feel pressure from a forecast from Thailand of production at a record 10m tonnes - and in a timely fashion too.

The country's Office of Cane and Sugar Board said that it expected crushing to finish in May, a month earlier than normal, implying that exports could quicker than expected onto world markets at a time of seasonal supply weakness while Brazil's season ramps up.

Mr Deane said: "Given our view of an increasing likelihood of a shrinking global sugar surplus from the weather concerns in Brazil, Thailand's output and ability to export sugar over the next six months will be critical in keeping sugar prices in check."

Raw sugar for May dropped 0.6% to 25.47 cents a pound.

Prices edge higher

But for the main grains, Wednesday brought recovery, at least early on.

Soybeans added 0.3% to $13.49 a bushel for May delivery, if not quite gaining enough to retake the contract's 10-day moving average line.

Corn for May gained 0.3% to $6.49 ¼ a bushel, again losing some of its premium over wheat, which added 0.4% in Chicago to $6.44 ¾ a bushel.

New York cotton, linked closer to grains at the moment through the spring battle for US planting acres, added 0.6% to 88.42 cents a pound for May.

Futures or data?

Whether they can hang on to gains, may depend in part on how much two other important factors have had in depressing prices.

"There are some analysts indicating that the price action from the past few sessions is a signal that the March 30 stocks and acreage report will be negative," Jon Michalscheck said, referring to an annual, and much watched, US Department of Agriculture briefing on prospects for US spring sowings.

"Others are more focused on the price action being tied to the April options expiring on Friday, and believe that liquidation should subside by the time we get to the end of the week."

For himself, Mr Michalscheck said that "in the short term, I would probably concur with the latter and look for at least a short term bottom" to be set, either in the last session or this one.

Nonetheless, "if China doesn't buy additional old crop corn and or the US spring weather pattern maintains a near ideal pattern it could set the market up for having ample layers of resistance above it as we go into the first half of spring", he added.

By Agrimoney.com

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