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Morning markets: cotton, soybeans lead rebound in ag prices

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US weekly export sales data are often something of a highlight of the agricultural commodities week, giving an insight into demand for agricultural commodities from the world's top exporter of

corn

,

cotton

and (for now)

soybeans

.

This week looks like being especially so, after all that talk of Chinese cancellations, or deferrals, or switches to Brazil, in corn and soybean orders, and with similar moves by Japan and South Korea mentioned by the market rumour mill too.

"Feed mills in China, the world's number two corn consumer, may hold off on importing large volumes of U.S. corn until September when the Chinese harvest becomes clear, as feed demand may slow and domestic corn output is seen at a record high this year," Lynette Tan at Phillip Futures said, voicing market theory.

Exit, or entrance?

But what is the truth of the talk?

As Luke Mathews at Commonwealth Bank of Australia noted: "Tuesday's sharp decline in the corn market was partially linked to rumours that China may have cancelled corn purchases.

"But last session's rally was linked to new rumours that China may have returned to the market and made fresh purchases."

He added: "We don't know who much truth there is in these Chinese whispers, however Chinese imports will be a key influence on corn prices over the next 12 months."

Data later

The weekly US export sales report will give an insight into any cancellations, as of last Thursday at last. (Next week's report will help give a fuller picture.)

The headline number, anyway, is expected to show a recovery in 1.0m-1.3m tonnes in corn sales, old crop and new combined, up from 865,100 tonnes the previous week.

For soybeans, sales are pegged at 1.0m-1.25m tonnes, potentially near-doubling the 673,400 tonnes achieved the week before.

For

wheat

, lower US export sales are expected, weakened by higher prices, falling to 350,000-55,000 tonnes from 711,400 tonnes the previous week.

At Lynette Tan at Phillip Futures noted, "the unusual premium of corn futures over wheat has reversed, again making corn a more cost-effective feed of the two grains".

External markets turn

Ahead of the data, investors were not taking too many more chances on cancellations or any other type of negative outcome.

Indeed, external markets offered less support to bears early on Thursday, with bargain hunters emerging after the trashing in values of risk assets in the week up to now.

Some, if not all, Asian

share

markets showed gains, with Tokyo stocks closing up 0.1%, and Seoul shares up 0.3%.

The safe haven of the

dollar

staged a, small, retreat as of 08:45 UK time (02:45 Chicago time).

And major non-farm commodities, such as Brent

crude

and

copper

, got off to a better start too.

Chinese influence

Signally, farm commodities in China, the focus of economic jitters besides all this order cancellation talk, managed a better day.

The Dalian's best-traded January soybean contract added 0.9% to 4,310 yuan a tonne, for only its second positive trading session in the last 10.

September corn edged 0.1% higher to 2,391 yuan a tonne while, on the Zhengzhou, September

sugar

gained 0.6% to 6,226 yuan a tonne and September

cotton

1.5% to 18,855 yuan a tonne.

And that too fed its way into the better performance on US exchanges, even for the likes of New York raw sugar, which rebounded 0.1% from a 21-month low to 19.52 cents a pound.

"Global sugar markets are primarily being influenced by developments in wider financial markets. This is likely to continue for some time yet given the escalating euro crisis," CBA's Luke Mathews said.

Cotton revives

New York cotton managed a bigger bounce from a 27-month low, by 1.9% to 72.90 cents a pound for July delivery, despite Mr Mathews issuing an unfortunate reminder on the fibre.

"During the global financial crisis global cotton consumption fell by more than 10% year on year and prices slumped below 40.00 cents a pound," he said.

And Chicago grains revived too, if by smaller amounts, with soybeans doing best with a 1.0% gain to $13.76 ½ a bushel for July delivery, and 1.0% rise to $12.70 ½ a bushel for the new crop November lot.

The oilseed has fared particularly during the recent broad market sell-off thanks to the large net long position held by speculators, which has been a target for liquidation.

Russian worries

Wheat gained 0.9% to $6.71 ¾ a bushel for July delivery, helped by observations that Russia's grain fears may have been alleviated by recent rains in some areas, but have not disappeared.

Agritel said: "Because lack of rain before the beginning of June, the yield potential could be much more affected" than evident in expectations of a Russian wheat crop of 50m-53m tonnes.

"Russian grain exports, overwhelmingly composed of wheat, could [come in] between 19m-22m tonnes if weather conditions return to normal," the consultancy said.

"However, in case that hot and dry weather remains in the centre of the country, a sharp decrease of available volumes is expected. A negative scenario could then limit exports 12m or 13m tonnes."

'Slightly drier bias'

Corn itself lagged, having got a dose of bargain-hunting in early in the last session, adding 0.3% to $6.05 ¼ a bushel for July delivery, and flat at $5.23 a bushel for December.

Jon Michalscheck at Benson Quinn Commodities flagged "a slightly drier bias to the central and southern US weather pattern, along with deliverable stocks reported to have come down in excess of 1.1m bushels from the previous week to 2.4m bushels" as supportive for prices.

Also, US weekly ethanol production data showed output of the corn-based biofuel (in the US) topped 270m gallons, the highest since February.

By Agrimoney.com

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