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Morning markets: ags lead gains as German data cheer markets

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Was it because a "people still have to eat" attitude?

Agricultural commodities honed their defensive credentials on Tuesday, even as the likes of


and other commodities continued to wobble, amid growing fears that the Greek political/debt crisis will prompt its exit from the eurozone, raising doubts over whether other countries might be forced to leave too…

Shares performed poorly in Asia, ending 0.8% lower in Seoul and Tokyo, and 0.7% down in Sydney - although some German data, showing Europe's largest economy grew 0.5% in the first quarter, fostered a better start on European markets.

The data also helped


recover to positive territory, from losses in earlier deals.

Palm rebounds

But gains were especially the order of the day in the agricultural commodities sector, as of 08:50 UK time (02:50 Chicago time).

OK, there were exceptions, such as


, which fell a further 3.2% in Tokyo to a four-month low of 270.40 yen a kilogramme for the benchmark October contract.

Besides the potential impact of macroeconomic setbacks on carmakers, the tyre ingredient is being undermined by the prospect of a seasonal recovery in output in top-ranked producer Thailand.

However, even Kuala Lumpur

palm oil

, which suffered its biggest fall in more than a year in the last session to close at a three-month low – Europe is a big importer of the vegetable oil - staged a marked comeback on Tuesday to stand 2.0% higher at 3,214 ringgit a tonne.

'Fundamentals will reassert themselves'

Agricultural commodities have the factor on their side that even in bad times, nutrition is required, underpinning demand.

But there are other arguments in their favour too.

"At some point fundamentals will reassert themselves," Paul Deane at Australia & New Zealand Bank said.

"In the oilseed market global stocks will tighten considerably over the next 12 months, leaving this market still susceptible to a large rally in prices.

"Further, any certainty around US spring crop production for






is still three-to-four months away, making it too early to call an end to the sustained period of higher prices since mid-2010."

'Unattractive prices'

Indeed, cotton did manage a rebound in New York from its lowest close since July 2010, adding 1.3% to 79.83 cents a pound for July delivery, even if futures on the Zhengzhou exchange in China remained on the defensive, falling 1.1% to 19,235 yuan a tonne for the benchmark September contract.

Back in New York, raw


laid down ambitious for a second day of recovery, adding 1.0% to 20.48 cents a pound for July, amid waning hopes for the power of exports from India, the second-ranked producer.

"India has issued a formal order freeing up sugar exports, which means exporters would not need permission for shipments from the food ministry but they must disclose the quantities sold overseas," Lynette Tan at Phillip Futures said.

"But even so India may only export another 1m tonnes of sugar given unattractive prices, bringing total shipments to 4m tonnes this year in an over-supplied global market."

'Starting to become of concern'

And investors rediscovered their knack for buying soybeans too.

The oilseed has, despite bullish forecasts in a US Department of Agriculture report on Friday, suffered selling in the face of broader financial market liquidation as speculators wind down a record net long position.

And overnight did offer a fundamental reason to sell, with USDA data showing US farmers planted 22% of their crop last week, equivalent to more than 16m acres, and bringing the total sown to 46% - well ahead of the average of 24%.

Still, "dry conditions in the southern plains are starting to become of concern and could impact double-crop soybean acreage", ie soybeans planted as a follow-on crop to early-harvested winter wheat "if rains do not develop shortly", Benson Quinn Commodities said.

Soybeans for July, in the lot's first day as the spot contract, added 1.3% to $14.04 ¾ a bushel.

'Pretty alarming rate'

The dry weather is of even more worry to wheat followers, who are beginning to wind back expectations for a crop of more than 400m bushels in Kansas, the top US wheat-growing state.

Indeed, the state's winter wheat was rated by the USDA overnight at 52% in "good" or "excellent" health, down eight points in a week.

"Recent hot temperatures and minimal rainfall has the Kansas crop going backwards at a pretty alarming rate," Brian Henry, at Benson Quinn Commodities, said.

"Considering the dry conditions in Kansas and the Black Sea region, the fund could lose interest in holding a large net short position in Chicago futures."

Certainly, Chicago's July contract added 1.0% to $6.04 ½ a bushel, but Kansas's July hard red winter wheat contract did even better, adding 1.2% to $6.21 ¾ a bushel.

Corn rebounds

Corn rose too, helped both by its fellow grain and ideas that it has been sold enough for now, with this year's US harvest, while forecast as huge, still a while away.

Mike Mawdsley at Market 1 highlighted that in the last session "corn was able to hold together, even with outside markets creamed", and it continued its revival on Tuesday.

The July contract added 0.9% to $5.88 ½ a bushel, with the December lot moving up in line to $5.10 ¼ a bushel.

While the overnight USDA data showed another big week for corn plantings, now 87% completed ahead of an average of 66% by this time of year, the figure had been anticipated by investors.


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