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Morning markets: corn leads as investors bet on US yield cut

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Wednesday brought another reason for investors to warm to risk assets – well-received Chinese inflation data.

With last night's news of Silvio Berlusconi agreeing to step down as Italy's prime minister raising hopes for a solution to that country's debt challenges having already put investors in a bright mood, they received a further fillip from a slip to 5.5% in Chinese inflation last month.

The figure was the lowest for five months, and down from 6.1% in September, and signally was seen as victory for those believing a "soft landing" for China's too-hot-for-comfort economy could be achieved.

China loosening?

Indeed, it was seen as opening the door to a potential reversal of some of the monetary strictures put in place to slow price rises.

And with easier monetary policy should come faster economic growth (besides bigger consumption of the commodities feeding China's boom).

Shares

closed higher, by 1.2% in both Sydney and Tokyo, and opened firm in Europe too.

London

copper

gained, as did Brent

crude

a touch, having closed the last session at its highest finish since September.

Agricultural commodities might too have shown an enthusiastic response, were it not for the prospect of the US Department of Agriculture's key Wasde crop supply and demand report later on, a monthly highlight of crop markets.

'Closely scrutinised'

Sure, some crops managed gains, including

cotton

, of which China is the top producer, consumer and imports, and for which New York December futures added 0.3% to 97.87 cents a pound as of 08:40 GMT.

A firm performance by Zhengzhou cotton in China helped, with the May lot added 0.2% to 20,305 yuan a tonne, getting a little further distant from its drop below 20,000 yuan last month to set a contract low.

Luke Mathews at Commonwealth Bank of Australia noted "hopes that political stability in Italy and Greece will help calm market nerves and support consumer sentiment", particularly important for a non-food farm commodity, more linked to discretionary spending.

That said the Wasde looms here too. "Production prospects in the US, Pakistan, India and China will be closely scrutinised in tonight's report, as will global consumption forecasts," Mr Mathews said.

'Flush with cash'

Corn

, whose Wasde data will be especially closely scrutinised, was higher too, gaining 0.7% to $6.65 ¼ a bushel for December delivery.

The prospect of a downgrade to the USDA yield estimate was one reason to keep selling at bay.

But so are buoyant ideas about consumption, at a time when cash markets are firm, raising ideas of futures as a means of ensuring supplies.

"Cash markets are noted to have continued to narrow as pipeline replacement has been difficult to surface as we come out the back end of harvest," Jon Michalscheck at Benson Quinn Commodities said.

"The producer appears to be flush with cash and remains an unwilling seller with the board well over $1 a bushel below its summer high, and that is making replacement bushels difficult to come by."

'Looking for a breakout'

And there are a myriad of technical forces at work as well.

As Agrimoney.com noted on Monday, charts may be signalling the corn is about to break out of its recent trading range.

Lynette Tan at Phillip Futures put it so: "Corn has been trading in a tight range between $6.30-6.60 a bushel, looking for a potential breakout of the tightening Bollinger bands."

And its thread upwards through a minefield of chart triggers has raised hopes of an upward breakout – Wasde data allowing.

The December lot's move up on Wednesday took it near the key level of $6.65 ½ a bushel, its October high, and towards its 50-day moving average at $6.66 ¼ a bushel.

'Fairly heavy rainfall'

But

wheat

, which enjoyed strong gains in the last session, found it difficult to rally further, and eased 0.2% to $6.55 ¾ a bushel.

Rains are expected in Australia, but it's not clear how much damage this will do, in falling on some areas where grains are not yet mature.

"The next two days will see fairly heavy rainfall through most of Victoria and southern New South Wales. Most of the wheat belt in these areas could get 10-25mm of rain today, with the same again for southern New South Wales on Thursday," Paul Deane at Australia & New Zealand Bank said.

Soybeans

, which managed only small gains in the last session, also reversed, remaining under pressure from strong hopes for South American harvest, following a good start to Brazil's sowing season.

CBA's Luke Mathews noted "expectations that the USDA will trim US soybean export demand" estimates in the Wasde, given buyers' increased enthusiasm for South American supplies.

Chicago's January contract fell 0.2% to $12.02 ¼ a bushel.

Asian weakness

In Asia, Kuala Lumpur

palm oil

slipped amid nerves ahead of the Wasde and Malaysian industry data due on Thursday, standing 2 ringgit lower at 3,043 ringgit a tonne, but only after setting a fresh seven-week high of 3,068 ringgit a tonne earlier.

And Tokyo

rubber

for April extended its decline, falling 1.5% to 268.50 yen a kilogramme, hit by fear for the impact of Thailand's flooding both on its own carmaking industry and that in other countries dependent on Thai parts suppliers.

Earlier the contract set a one-year low of 266.20 yen a kilogramme.

By Agrimoney.com

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