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Morning markets: ags stage revival, feeding on bears' doubts

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For much of the week, agricultural commodities' newly-rediscovered willingness to go a different way to shares has meant lower prices.

But on Thursday, crops staged a rebound, even as shares struggled amid worries ahead of the latest auction of 10-year bonds from Spain, the epicentre of the latest round of eurozone debt concerns.

"There will be a lot of attention on tonight's Spanish 10-year bond auction, and the result will give a good indication on how the [broader] market will perform in the next few days," CMC Markets said.

Shares fell 0.1% in Shanghai, 0.2% in Seoul and 0.8% in Tokyo.

'Exports slowed down'

But for crops, there was one advantage in that the market jitters centre on Europe rather than China, a huge buyer of the likes of

cotton

,

rubber

and

soybeans

, whose economy has also inspired caution of late.

That said, Europe is a large importer of

palm oil

, which fell 0.7% to 3,454 ringgit a tonne in Kuala Lumpur as of 08:40 UK time (02:40 Chicago time), extending a retreat from last week's one-year high of 3,628 ringgit a tonne.

In Singapore, Ker Chung Yung at Phillip Futures flagged investor fears that "the eurozone debt crisis could hurt demand for the edible oil", besides data earlier in the week from cargo surveyors showing "Malaysian exports slowed down for the first time after a strong run since early March".

Self-fulfilling rise

In New York

cotton

, of which China is the top importer, rose 1.3% to 91.15 cents a pound for the best-traded July contract, extending a winning run, fuelled by short-covering, and which has become somewhat self-fulfilling.

Higher prices have improved the fibre's technical picture which have encouraged short-covering which has lifted prices, etc.

A rally in the last session, which took the fibre limit-up at one point, "certainly did help technicians believe that Monday's break, that bounced off the lower end of the Bollinger Bands, did in fact establish the low end of a trading range", Mike Stevens, the Louisiana-based cotton analyst, said.

Furthermore, there are ideas over small deliveries against the May contract, which enters the expiry process next week, and stood 1.1% higher at 92.98 cents a pound.

That said, Luke Mathews at Commonwealth Bank of Australia noted that "the cotton market remains trapped within its two-month trading range".

Revivers

Also among soft commodities, raw

sugar

for May, which closed the last session at a 10-month low, rebounded 1.0% to 22.57 cents a pound, if only as holders of short positions took some profits.

The better-traded July lot added 1.0% to 22.23 cents a pound.

But that was nothing compared with the revival in Chicago

corn

which, having fallen below $6 a bushel at one point in the last session, and closed at a three-month low, rebounded 2.0% to 6.13 ½ a bushel.

Did the last session's liquidation, in which funds sold an estimated 20,000 contracts, go too far?

'

Who's selling it?'

One potential concern for investors banking on further losses is the prospect later of US export data which are expected to show sales easing from last week's 976,000 tonnes to some 700,000-950,000 tonnes, but could always throw a surprise if low prices have attracted buyers.

"The weekly export sales report may help slow the tide of liquidation on the old crop contracts if we see the US Department of Agriculture come in with a respectable amount of old crop sales," Jon Michalscheck at Benson Quinn Commodities, who described the recent deterioration in market so.

"The daily calls have gone from 'can we go back up to those old March highs' to, 'what's going on', 'who's selling it', 'do you think they are almost done?'"

But even the central premise for selling that the US is on for a huge crop this year, fuelled by a near-record pace of sowings, has its doubters too.

Lesson from history

US Commodities noted that the 17% of US corn planted as of Sunday was only marginally behind the pace of 2010.

"By next week 50% of the corn crop was planted in 2010," the broker said, but added: "Remember what ultimately happened.

"Two years ago was a short crop in the US and around the world. Thus we began a 1-and-half year rally. The point is we are off to a big crop but things can change."

As an extra boosted to Chicago prices, values on the Dalian exchange in China, a growing buyer of the grain, rose 0.8% to 2,439 yuan ($387) a tonne for the benchmark September contract, equivalent to more than $9.80 a bushel.

'Prolonged dry spell'

Corn's performance helped other Chicago crops too, including

wheat

, which gained 1.5% to $6.20 a bushel, with weather fears elsewhere providing a prop too.

"There are some concerns in the trade as to whether a prolonged dry spell will continue into May and beyond for regions of the European Union and the former Soviet Union," Mr Michalscheck said.

And soybeans recovered 0.8% to $14.18 ¾ a bushel for May, with the better-trade July lot up 0.8% at $14.24 ¼ a bushel.

After all, the fall in the last session was not down to "any bearish news", Mike Mawdsley at Market 1 said.

"It was just funds taking profit and hitting stops along the way."

US weekly soybean exports later are expected to come in at 850,000-1.1m tonnes, up from 636,000 tonnes the previous week, with wheat's expected at 450,000-650,000 tonnes, in line with the 543,000 tonnes last time.

By Agrimoney.com

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