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Morning markets: commodity futures slip on Greece, again

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For anyone hoping markets would begin a new month, and new quarter, in better fettle, prepare to be disappointed.

There was some good news out overnight that might have proved something of a rallying point, with the monthly round of PMI manufacturing surveys showing China's factory sector in better health than expected. Its PMI index rose 0.3 points to 51.2 points.

What's more, the data showed broad-based upbeat news, with new orders from home and abroad indicating that "the fear of an export-led slowdown has diminished", while "the pressure from imported inflation has lessened", according to Australia & New Zealand Bank.

Given that China is the top importer of a range of commodities, including

cotton

and

soybeans

, this might, in less volatile times (

Vix

index up 10.6% at 42.96 on Monday) have provided the basis for some kind of futures rally.

Slipping on Greece, again

But Greece, as ever, spoiled the show by admitting that it was to miss a deficit target set just two months ago, so throwing a pall over efforts to find a solution to its debt crisis, and indeed that of the broader eurozone.

The impact on financial markets was not hard to imagine. Tokyo

shares

ended down 1.8%, the

dollar

strengthened 0.5% against a basket of currencies, putting extra pressure on prices of dollar-denominated exports such as

oil

, which, for Brent crude, fell 0.7% to $101.91 a barrel as of 07:40 GMT (08:40 UK time).

Copper

fell more than 5% in London to its lowest since July last year.

Agricultural commodity futures too lost ground pretty much across the board, although it will be interesting later to see if livestock futures, notably in Chicago

lean hogs

, continue their upswing, as lower grain futures encourage thoughts that farmers will expand herds.

Rumours of Chinese buying were also credited with the October lean hog contract's limit-up close to the last session.

'Need to see demand show up'

For grains themselves, Monday piled on the misery, especially for

corn

, which dropped to a fresh 2011 low of $5.81 ¼ a bushel for December delivery before recovering a smidgen of ground to $5.82 ¼ a bushel, down 1.7% on the day.

Friday's US Department of Agriculture data showing surprising large domestic corn inventories, which sent the grain limit down in the last session, were one factor.

"Though supplies are still down year-on-year, they are no longer in danger of falling to dangerously low levels," Lynnette Tan at Phillip Futures said.

At Market 1, Mike Mawdsley said: "One would think we were approaching fair value for grains/soybeans, but we do need to see demand show up on this break, and soon" to revive prices.

There was little evidence over the weekend of demand, with no reports of fresh export orders.

Southern rain?

In fact, the weekend bought fine weather which speeded the US corn and soybean harvests, with conditions looking to remain dry for the rest of the week.

That said, rain could be on its way, from a system potentially set to move to more southerly crop areas around October 8-9.

Data from weather models is "in good agreement" that a trough is "now going to come out of the Rockies fairly strong, and we will see good rains develop over eastern Colorado, all of the Texas Panhandle, all of western half of Oklahoma and Kansas and western half of Nebraska - 70% coverage of one-to-three inches", WxRisk.com said.

"This to be the most significant rain this area has seen in months."

'Continued pressure'

Still, that looks like being of most significance to hard red winter

wheat

, which southern farmers have had trouble sowing because of dryness (and for which the ideal seeding window has closed for grazing crops).

Wheat fell 0.3% to $6.07 ¾ a bushel in Chicago, for December delivery.

Soybeans for November dropped 0.9% to $11.69 a bushel, earlier hitting $11.65 ½ a bushel, the lowest for a spot contract in very nearly a year.

"Expect continued pressure on soybeans on increased harvest activity, with outside markets continuing to hold great sway over the grains due to fears a slowdown in global economy will dampen already-slow raw commodity demand," Kim Rugel at Benson Quinn Commodities said.

'Downward pressure'

In Kuala Lumpur,

palm oil

did the same, hitting a level last seen in October 2010 by dropping to 2,827 ringgit a tonne for the benchmark December lot, which then recovered some ground to 2,835 ringgit a tonne, down 2.4% on the day.

Rubber

dropped 2.6% to 302.60 yen a kilogramme in Tokyo, not quite matching last week's one-year low.

Ker Chung Yang, at Phillip Futures, noted that the impact of Chinese data would be muted given the close of the country's own markets for National Day celebrations.

"While China's markets are closed, rubber price's direction may depend on external markets," he said, while adding that futures "will likely to face downward pressure when investors return on October 10, given lingering economic uncertainty due to the eurozone debt crisis".

By Agrimoney.com

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