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Morning markets: corn futures rediscover forward gears

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Have grains found a floor?

Corn

, at least, rediscovered how to move upwards, after losing 11% so far this week. Chicago's July contract was 0.6% higher at $7.05 ½ a bushel as of 07:40 GMT (08:40 UK time).

Oats

, often seen as a leading indicator, showed gains too, of 0.4% to $3.57 ½ a bushel, with the new crop September contract soaring 1.2% to $3.67 ½ a bushel.

But any thoughts that the sell-off had come to an end were questioned by continuing weakness in

wheat

, which fell 0.3% to $6.71 ¼ a bushel for July delivery.

And there was the nagging doubt that the rebounds were more about speculators who have benefited from the drop in prices taking money off the table ahead of the weekend than fundamentally falling back in love with grains at lower levels.

"I would not be surprised to see the shorts take some profits," Brian Henry at Benson Quinn Commodities said.

External forces

That said, the macro-economic picture was still pretty bleak, but not as stormy has it has been earlier in the week, with the European Union and the International Monetary Fund expected to release a E12bn loan lifeline early in July.

Sure, shares continued their round of declines, with Tokyo's Nikkei index finishing down 0.6% at a three-month low, and Shanghai stocks down 0.8% in late deals.

But the

dollar

, an (inverse) indicator of sentiment, turned weaker against a basket of currencies, by 0.2%, making dollar-denominated assets more competitive as exports.

Copper

prices edged higher, even if New York

crude

fell 1.2% below $94 a barrel.

Ethanol vote

And there was plenty of scepticism around that the Senate vote on Thursday to remove tax perks for ethanol plants, which consume nearly 40% of US corn, would come to anything.

"For the life of me, I cannot figure out the major differences between bill that failed on Tuesday and the one that passed"," Mr Henry said.

"Regardless, there are major questions regarding when [Congress] may look into this issue." And the White House "does not support a full scale repeal of the current ethanol subsidy structure".

Abah Ofon at Standard Chartered added: "Passing this into law will be no walkover as the White House has made it clear that it is against a full repeal of ethanol subsidies and could use its veto to block the amendment.

"Eradication of ethanol subsidies is still a difficult sell in the US, particularly in the short term, as this will have adverse and significant consequences for the US's Renewable Fuels Standards."

Biofuel plant dilemma

Furthermore, lower corn prices, and only marginally lower crude prices, have revived profit prospects for ethanol plants, many which had been expected to use a period of squeezed margins as an opportunity to take maintenance shutdowns in late summer.

"It appears this is going to be an issue resolved by the basis in this region as ethanol producers have gotten another good opportunity to establish long futures positions," Mr Henry said.

And, as an extra fillip for corn, three South Korean feedmakers are reported to have bought, or be seeking, 350,000 tonnes of the grain for autumn delivery, viewed as a sign that lower prices are stimulating export demand too.

'Funds will continue to sell'

That said, the South Korean groups are said to be interested in 220,000 tonnes of feed wheat too, a factor which failed to prevent wheat's dip.

But then wheat is under pressure from the US harvest, which brings a spike in supplies and is proving better than had been expected, besides having a range of technical factors ranged against it.

Chicago's July lot, for instance, in the last session fell below a level at around $6.90 a bushel which had held three times before since the autumn.

With this floor broken, "funds will continue to sell until they are out of long positions", Mike Mawdsley at Market 1 said.

Argentina downgrade

Among other crops, Chicago

soybeans

retained some resilience, supported by a downgrade by Argentina of 800,000 tonnes, to 49.6m tonnes, to its 2010-11 production of the oilseed.

The farm ministry gave no reason for the downgrade to the world's third-ranked soybean crop.

Also, "traders are keeping an eye on weather issues in the Mississippi Delta", which has been hot, "and along the Missouri River valley", which has flooded, Ker Chung Yang at Phillip Futures said.

The July soybean lot stood 0.2% lower at $13.48 ½ a bushel.

By Agrimoney.com

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