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Morning markets: cotton leads decline on China, euro jitters

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Agricultural commodities could not maintain their ability to swim against the tide.

External markets continued on Monday the slide with which they ended last week, given an extra shove by data over the weekend showing Chinese inflation reaching a three-year high of 6.4% in the year to June.

This increase, spurred by a 14.4% rise in food prices, spurred thoughts that further interest rate rises might be in the wings, with associated risks for economic growth in the Asian powerhouse.

"We reckon [on] at least one interest rate hike in the third quarter, and view inflation will become 'structurally' higher for the following years," Australia & New Zealand Bank said.

Spread to Italy?

While Shanghai stocks managed a, typical, counterintuitive move, adding 0.2%, with separate data showing a rise to $22.2bn in China's trade surplus last month, other Asian stock markets failed to see the upbeat side.

Tokyo's Nikkei index shed 0.7%. Fresh concerns for eurozone sovereign debt gave a further dent to sentiment, after the European Union called a meeting of senior officials amid concerns that jitters could spread to Italy, the region's third-ranked economy, after Germany and France.

Furthermore, the Financial Times reported that some European leaders are considering allowing some default by Greece, the region's worst affected economy.

The euro dipped, and the


added 0.5% against a basket of currencies as of 07:50 GMT (08:50 UK time), making dollar-denominated assets such as many commodities that much less competitive as exports.

'Rain interruptions'

Prices of many raw materials fell, with New York


down 1.3% at $95.00 a barrel.

And, among farm commodities,


was among the weakest, down 1.7% at $6.40 a bushel for September and 1.7% to $6.79 ¾ a bushel for the December lot in Chicago.

Kansas wheat for September fell 1.7% to $7.15 a bushel for September.

Pressure from harvests picking up pace in Europe too added pressure, despite some rain interruptions in France, the EU's top producer, and "further thunderstorms forecast for this Wednesday," according to Agritel.

Still, in northern France, the consultancy added that "yields seem less impacted by drought occurred this spring", helped by their late development which allowed them to benefit more from early summer rains.

Any sellers left?


fell 0.5% to $6.38 a bushel against for September and 0.9% to $6.31 ½ a bushel for the best-traded, new crop December contract, given some support by fresh signs of demand.

South Korean feedmaker Nonghyup Feed bought 110,000 tonnes of corn for delivery between October and November.

Furthermore, there are some doubts as to the weight of selling left likely in corn, given the liquidation which funds have already undertaken in corn.

Regulatory data out late on Friday showed that large funds "have blown out of another 36m+ bushels of ownership which would have them reducing their length by nearly two-thirds since the beginning of April", Jon Michalscheck at Benson Quinn Commodities said.

In the latest week (to last Tuesday), "speculators liquidated a quarter of their net long position in corn, and positioning is now much closer to 'neutral'", ANZ said.

China damage



lost their grip on their gentle strength of late, which has been spurred by official data last month showing US sowings of the oilseed were below forecasts, at a time when supplies already look tight.

The news on China, the top importer of the oilseed, sent Chicago's best-traded November lot down 0.3% to $13.43 a bushel, with the old crop August contract shedding 0.2% to $13.44 ¼ a bushel.

Still, that was better than


, of which China is also the biggest buyer, which tumbled 2.2% to 111.41 cents a pound for the best-traded December contract.

The lot earlier hit 110.82 cents a pound, its weakest for five months. The decline also took the fibre below its 200-day moving average, near about 111.73 cents a pound, below which is has not fallen since August, according to Mike Mawdsley at Iowa-based broker Market 1.

Luke Mathews at Commonwealth Bank of Australia also noted the depressant to prices offered on Friday by a "bearish US jobs report and another week of [cotton] net export sales reductions in the US".

'Powerful heat dome'

More will be known on US shipments later, with the weekly data on export inspections.

Also potentially to effect market moves will be the prospect on Tuesday of the latest US Wasde report on world crop supply and demand estimates, which are of particular interest this time given the changes two weeks ago to estimates for US crop sowings, and unexpected stocks data too.

And the weather could, as ever, move the markets, particularly with attention on a US "heat dome" set to hit the Midwest – after some cooler weather and thunderstorms over the next few days.

"A powerful heat dome continues to appear in all the models," weather service said.

"The dome develops around July 15 and spreads into the western Corn Belt on the 16th and looks to last for several days.

"The greatest heat is going to be from the Mississippi River westward towards of the Rockies."


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