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Morning markets: crop prices lifted by more weather premium

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If there is one thing which would prevent the injection of further weather risk premium into agricultural commodity markets, and further price rises, it is a change to a more benign outlook.

That did not happen, by 07:00 GMT (08:00 UK time) at least. In fact, in some respects the outlook was even worse, from a farmers' perspective, bringing more dryness to already dry areas, and including for Russia, where a spell without rain is provoking memories of last year's drought.

According to a late-Tuesday report from WxRisk.com, one model for the six-to-10 day weather outlook turned "much drier over France and Germany in the 6-to-10 day and very dry over the Ukraine, with rainfall 25% of normal in the Ukraine and south west Russia (southern Volga district)".

In the 11-to-15 day timespan, the model "has significant rains moving into western and central France ... but the Ukraine and western Russia stays very dry".

In fact, Paris-based consultancy Agritel said that "agricultural markets are becoming more nervous each day due to the weather conditions in northern Europe", including for France, the European Union's top grain producing country.

"The weather conditions remain a source of concern in France, especially for malting barley. Corn producers have also started worrying about irrigation restrictions in France."

'Crunch time'

And this before getting on to the US forecasts, which show "above-normal rainfall" in the Midwest for both six-to-10 and eight-to-14 day outlooks, WxRisk said.

This means farmers already behind with sowings of most major crops taking a further break, and potentially giving up on some plantings in favour of taking insurance or switching to later-planted crops such as soybeans,

"A combination of the wetness in the east Corn Belt along with the flooding on the mid-Mississippi and areas south has the lost corn acreage estimate climbing in excess of 1m acres," Jon Michalscheck at Benson Quinn Commodities said.

"The question will remain unanswered for a month or more as to exactly how many acres were lost, along with the impact the less than desirable start to the growing season will have on the final yield."

Mike Mawdsley at Market 1 said: "This is crunch time. Do we plant 92m acres or not? We shall know in the next two weeks," 92m acres being the initial US Department of Agriculture estimate for domestic corn sowings.

External influences

And, as an extra reason for investors to remain positive on agricultural commodity prices, the broader market influence turned more upbeat too, with Asian shares posting gains (Tokyo's Nikkei index closed up 1.1%) and other raw materials doing better as well.

Oil

rebounded 1%, heading back towards $98 a barrel, with copper making small headway too.

The

dollar

helped by returning to the back foot, easing 0.3%, and so making dollar-denominated assets more attractive to buyers using other currencies.

Above averages

Furthermore, some technical pointers were helpful too, with grains' strong performance in the last session breaking through chart points, and so setting putting contracts on the tee for another strike ahead this session.

Chicago

corn

, for instance, for July last time broke through the 50-day moving average, and added a further 0.6% on Wednesday to take it to $7.24 ¾ a bushel, just ahead of the 20-day line.

July

wheat

, which bust through its nine-day line on Tuesday, gained 1.1% to $7.72 ¼ a bushel. (It still has some way to go before 20-day and 50-day lines, set above $7.80 a bushel.)

'Fresh speculative buying'

For

soybeans

, for which US sowings stand to gain if farmers give up on corn, part of the secret to its resolute strength has been a dearth of sellers at key technical levels.

After all, estimates are still being upgraded for South American crops, with Oil World on Tuesday estimating the Brazilian crop at 73m-73.6m tonnes, beating last year's record of 68.7m tonnes by a distance.

But in the last session, "the inability of soybeans to attract sellers at the bottom of a recent trading range attracted fresh speculative buying", Ker Chung Yang at Phillip Futures said.

Chicago's July contract added a further 0.3% to $13.45 a bushel.

Catch up

Elsewhere, in Kuala Lumpur, where markets were closed on Tuesday,

palm oil

played catch up with the rest of the oilseeds complex, adding 1.4% to 3,299 ringgit a tonne for August delivery.

However,

rubber

eased in Tokyo, shedding 1.0% to 377.50 yen a kilogramme for the benchmark October lot.

By Agrimoney.com

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