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Morning markets: corn revives, despite confusion over China

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Was it really China that made that huge order of US

corn

?

Some have been questioning whether it really was Beijing behind the 1.25m-tonne order by "unknown" confirmed on Friday, which sent grain prices soaring… momentarily before "buy the rumour, sell the fact" profit-taking stepped in.

"We believe that there is a chance that Japan is the buyer," Ker Chung Yang at Phillip Futures in Singapore said.

"The country may have wanted to secure grain following a recent price break and amid concerns about food contamination."

'Impressive' data ahead?

Whatever, "we expect the corn market will be well-supported regardless of the buyers", Mr Ker added. "We anticipate impressive US corn export inspection data issued tonight."

And there are still rumours hanging around of (further?) Chinese purchases anyway, allowing the grain to make a little early headway despite two and a half factors urging caution.

One of these was a modestly stronger dollar, up 0.2%, which came down largely to a weaker euro after the party of German chancellor Angela Merkel lost a key state election. A stronger dollar makes dollar-denominated assets less competitive as exports.

The second was the prospect this week of key US Department of Agriculture data on US sowings, one of the key reports of the agricultural commodities year.

"Thursday's USDA report is a well-anticipated event that could keep some traders sidelined," Dave Lehl at Benson Quinn Commodities said.

Complex picture

The half was latest news from China on inflation. A front-page editorial in the People's Daily said the country was confident of capping inflation below a target of 4% thanks, among other things, to apparently plentiful stocks of grain and industrial products.

On the face of it, the ample inventories bit is a depressant to commodity prices. And, indeed, copper eased in early deals.

However, the news deserves to be discounted because of doubts over the accuracy of Chinese data.

Furthermore, if the battle against inflation is being won, this could imply limited further monetary tightening of the type outlined by Bank of China president Li Lihui on Friday, so less of a brake on economic growth and therefore on demand for raw materials.

Mr Li said that he had expected China to raise interest rates by between two and four times over the rest of 2011.

Past expiry

Besides, corn had the advantage on Monday of the absence of so much turbulence from option markets, as caused in the last session by an expiry process.

"We would note April options expired, which could have kept the [futures] rally from happening," on Friday, as might have been expected given the mega-export order, Mike Mawdsley at Market 1 said.

Furthermore, a report late on Friday on US hogs showed the herd mildly higher than the market had expected, indicating greater demand for feed.

Chicago's May corn contract added 0.4% to $6.92 ¼ a bushel as of 08:40 GMT.

'Developing showers'

That was better than

wheat

, which eased 0.1% cents to $7.32 ¼ a bushel for May, which felt more of the external pressure, and with rain approaching some dry areas of the US southern Plains, where hard red winter wheat has been struggling for moisture.

Meteorlogix expects today "developing showers from west to east, and "showers and periods of rain", albeit of maximum 10mm, on Tuesday.

Soybeans

for May were a little under the weather too, down 0.75 cents at $13.57 ½ a bushel, maintaining a recent preference for not straying too far.

'Production response'

Where China did have an influence was on prices of

cotton

, where a tumble of 4.9% in the Zhengzhou exchange kept a lid on New York futures, which fell 2.7% to 198.93 cents a pound for May delivery.

It was possible that the market took more note of the People's Daily comments.

But, as Luke Mathews at Commonwealth Bank of Australia said, "prices may soon come under pressure because of an expected large global production response in 2011-12".

Indeed, a domestic industry association on Friday raised sowings data for China, the top producer, importer and consumer of the fibre.

Rubber

, of which China is also a major importer, had a poor day too, dropping 4.7% to 409.30 yen a kilogramme in Tokyo, for the benchmark September contract, on what Mr Ker said was a negative take on the Chinese economy news.

By Agrimoney.com

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