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Morning markets: 'buy commodities mentality' supports crops

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Thursday might have been expected to get off to a slow start, given the prospect of yet more important US crop data coming down the track.

But farm commodities actually made mentionable gains in early deals, all three of the Chicago majors, corn, wheat and soybeans, included. Recent sessions have been marked by soybean sloth, while the grains have attracted the, generally upward, volatility.

In New York,


lifted 2.6%, or 5.45 cents, to 213.51 cents a pound as of 07:15 GMT (08:15 UK time), falling just short of rising, again, the exchange maximum of 7.00 cents.

And this despite a slight strengthening in the


, as the euro, beset by the Portuguese crisis, eased. A strong greenback makes dollar-denominated assets such as farm commodities more competitive as exports.

Rainfall to disappoint?

The reason for the gains? There was some fresh fundamental cause, with doubts creeping in, for instance, about just how helpful the rain will be which may be about the reach parched US hard red winter



"It is unlikely that the rainfall will prove sufficient to materially improve crop conditions which are currently rated at their poorest levels since 2002," Luke Mathews at Commonwealth Bank of Australia said.

Chicago wheat added 0.5% to $7.86 ½ a bushel for May.

And cotton could claim support from the Zhenghzou exchange in China, the top importer of the commodity.

'Demand unabated'



was still gaining support from last week's data showing US stocks of the grain 170m bushels lower as of March 1 than the market had thought.

(It is how this is interpreted as feeding through for the end of the 2010-11 crop year, in August, that is the big question for the US Department of Agriculture's flagship monthly Wasde report on world crop supply and demand, due on Friday.)

"Despite last night's softer tone in prices, the market continues to worry about the tight old-crop supplies and strong demand, which continues unabated in the face of record-high prices," Mr Mathews said.

"Demand rationing needs to occur in the US corn market, meaning prices should remain well supported for some time."

Corn for May added 0.5% to $7.67 a bushel, returning to within 4 cents of Tuesday's record high.

Technicals vs fundamentals

And there was significant chart-watching going on too.

"Market moves are based on technical elements, as the market is technically overbought but fundamentals remain supportive," Agritel, the Paris-based consultancy, said.


seem especially in thrall to technical pointers, such as moving average lines which many investors see as trigger points.

Mike Mawdsley at Market 1 noted how the oilseed, after being supported by its nine-day moving average earlier in the week, in the last session "could not close over" its 50-day moving average, of $13.83 a bushel for Chicago's May lot.

"A close over $14.00 a bushel and, more importantly, $14.32 a bushel is needed to excite the market," Mr Mawdsley added, terming $12.75 a bushel possible on the downside if a support level at $13.50-13.60 is broken.

The May contract stood at $13.81 ¾ a bushel, up 0.4%.

Cotton pattern

At Hightower Report, Terry Roggensack saw the hand of technical pointers in cotton's movements too, noting how earlier this week the fibre "bounced off of the 50-day moving average and off the neckline of a head and shoulders top formation for an impressive recovery from the lows".

The rebound had been helped by "ideas that the USDA may be forced to increase the exports and tighten ending stocks in its Wasde report on Friday".

Looking ahead, he noted technical resistance for the July cotton contract at 196.66 cents a pound.

"A close above this level would be considered bullish and would suggest another leg higher to 223.27 cents a pound," he said.

The lot was just below, at 195.60 cents a pound, in early deals, if up 0.18 cents on its close last night.

'Buy commodities mentality'

However, there was also some feeling that commodities, including agricultural ones, were just back in vogue among investors, especially with the poor weather affecting districts such as the US cotton growing areas suffering the same drought as hard red winter wheat districts.

"Uncertain weather for now and a 'buy commodities' mentality from investors may keep the short-term trend up," Mr Roggensack said.

Australia & New Zealand Bank noted a revival in


prices, "a good indicator that positive sentiment towards commodities remains". The metal was underpinned on Thursday by a forecast from Rio Tinto of a market deficit of 500,000 tonnes this year, and shortages through 2013.

Data later

The better sentiment did not reach all markets, with

palm oil

falling 1.5% to 3,325 ringgit a tonne in Kuala Lumpur on thoughts that Malaysia's stocks of the oilseed will, in data on Monday, be showing to have hit a three-month high.

As for whether Chicago gains hold, much may depend on weekly US export data due later

"The trade is not expecting anything special as wheat sales are expected to meet the 350,000-400,000-tonne range, and corn exports should come in well shy of 1m tonnes," Brian Henry at Benson Quinn Commodities said.

Last week, 410,000 tonnes of wheat were sold, and 2.2m tonnes of corn.

Soybean export sales are expected at 300,000-450,000 tonnes, compared with 258,000 tonnes last week.


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