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Morning markets: crop bears retreat as key report looms

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Did investors overdo the selling in grains in the last session?

The storm, in which funds sold an estimated 14,000

corn

contracts, 4,000

soybean

contracts and 3,000

wheat

lots, was certainly followed by some sunshine.

And the bulls had had the rub of the cloth in terms of the fundamental news early on – although that could all change later, of course, with the release of the US Department of Agriculture's monthly Wasde crop report.

This one is being viewed with particular interest as it includes the USDA's first full estimates for 2012-13.

Easier dollar

One point in favour of rising agricultural commodity prices was a small decline in the

dollar

against a basket of currencies, if only on profit-taking after a run-up this week on fears for the eurozone problems tipping back into crisis.

A weaker dollar improves the affordability of dollar-denominated assets, including many commodities, to buyers in other currencies.

London

copper

, for instance, traded in in dollars posted early gains, of 0.5%.

And as an extra sign of the "risk-off" trade abating for now, European

shares

got off to a firm start, adding 0.2% in London and 0.5% in Frankfurt and Paris.

'Generally negative'

Among farm commodities themselves, China provided some positive snippets, for instance with customs data showing soybean imports rising 26% last month from April 2011 to 4.88m tonnes.

This countered some of the news emanating on Wednesday of the country selling some 2m-3m tonnes of soybeans from state reserves in an effort to quell prices.

"That is generally negative, but also generally expected," Darrell Holaday at Country Futures said.

Indeed, even in China itself, the benchmark September contract on the Dalian exchange rebounded 0.5% overnight to 4,463 yuan a tonne.

In Chicago, soybeans for July recovered 0.9% to $14.42 ¾ a bushel as of 09:00 UK time (03:00 Chicago time), and for November 0.7% t0 $13.43 a bushel.

Chinese purchases

Furthermore, in corn, which rose 0.7% to $6.11 a bushel for July delivery and 0.3% to $5.18 ¼ a bushel for December, there was reconsideration of the talk of further huge Chinese purchases, of some 500,000 tonnes, of US corn.

Sure, that had not impressed investors in the last session.

"We would assume that if the bears believe that we could be planting the largest amount of acreage since the 97.2m acres from 1937, and if we do in fact have a mid-160-bushels-an-acre yield, we will need to sell an additional 25.0m-40.0m tonnes of corn to someone or risk the carryout expand to 2.0bn bushel or more during 2012-13," Jon Michalscheck at Benson Quinn Commodities said.

But what if the crop is not so good?

Wasde data

More on that will be known later, with the Wasde, which is expected to show US corn inventories ending 2012-13 at 1.71bn bushels.

But there is quite a spread of market estimates, from 1.21bn bushels to 2.07bn bushels.

The range of forecasts for soybean inventories is even greater, from a suffocating 87m bushels to a relatively ample 250m bushels, with a consensus figure of a tight 164m bushels.

Even in wheat, the spread extends from 609m bushels to 916m bushels, with a consensus of 916m bushels. And that is for a grain of which autumn-sown crop is starting harvest.

'Should be some scepticism'

Not that the crop has yet escaped all its weather scares, with more potential freeze worries in the US, if centred on northern, spring wheat areas where the crop is still in its infancy.

"If it does freeze, it should support wheat, led by Minneapolis," where spring wheat is traded, Mike Mawdsley at Iowa-based Market 1 said.

And there are some potential weather upsets abroad too, including in China, where dryness in northern areas has begun to cause comment, and is set to continue for at least the next week, during which "North China Plains rainfall will run much below normal", according to WxRisk.com.

In the Black Sea area too, a forecast from the European weather model of heavy and needed rain should be taken with a pinch of salt, WxRisk.com said.

"This solution is very different from what the model is showing on Tuesday so there should be some scepticism involving this possible heavy rain event," the weather service said.

Wheat for July rose 0.8% to $6.04 ¾ a bushel in Chicago.

Cotton recovers

Among soft commodities,

cotton

tapped into the most positive broader market vibes to add 0.4% to 86.12 cents a pound in New York for July delivery.

Furthermore, the USDA overnight put out a report from its Beijing bureau estimating a 4.9% drop to 33.1m bales in production, while consumption is set for a 4.2% rise to 45.9m bales.

And New York raw

sugar

extended a recovery which set in late in the last session, adding 0.7% to 20.52 cents a pound for July delivery.

In Kuala Lumpur,

palm oil

added 1.1% to 3,371 ringgit a tonne, helped by data showing a 5.4% decline to 1.85m tonnes in stocks of the vegetable oil in Malaysia, the second-ranked producer and importer.

By Agrimoney.com

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