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Morning markets: crop prices mark time, as key data nears

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Agricultural commodities have returned to something of a leisurely wake-up.

The pattern for the week, and the end of last week too, has been for modest movement in Chicago futures in Asian trading hours, with volatility emerging very much in live trading later on.

That continued on Wednesday, with Chicago crops dallying over their coffee and croissants although it was notable that wheat was at least breakfasting in positive territory this time.

Macro influences

But then there was fair cause for a little caution over direction, for at least three reasons.

One was a dearth of direction in many markets – the Nikkei share index closed up less than 0.1%, with Shanghai stocks up 0.02% in late deals , with the dollar also showing minimal movement.

Comments from central bank boss Ben Bernanke on Wednesday which were taken as indicating that the US is not in for a further round of loose monetary policy were viewed as keeping a lid on sentiment.

The second was the prospect this week of inflation data in China, where monetary policy too is seen a big deal given the country's huge appetite for raw materials, including cotton, rubber and soybeans, and the potential impact on this of higher interest rates.

"China's May inflation data may set for further indications of future policy trends," Ker Chung Yang, at Phillip Futures in Singapore, said.

"Investors are still concerned about Beijing's monetary tightening policies, which may weigh on the commodities demand."

That said, talk that China has lifted price caps on vegetable oils may be an indication it is more comfortable with food inflation.

Stocks adjustments

The third was data-related too, the publication on Thursday of the US Department of Agriculture's latest Wasde report on world crop supply and demand, which is being keenly anticipated this time for changes it might make to expectations for this year's US







The consensus is for a an increase to the estimate for US soybean stocks at the close of 2011-12 (and 2010-11), reflecting weaker demand of late, but cuts to estimates for wheat and, especially, corn inventories.

Luke Mathews at Commonwealth Bank of Australia highlighted "talk that the near record high prices have been insufficient to curb [corn] demand in the livestock and ethanol markets", with export prospects supported by an 823,000-tonne order of US corn on Tuesday from Mexico.

But has this already been factored in?

Maybe not, with Chicago's December corn contract added 0.3% to $6.78 ½ a bushel, with the old crop July lot up 0.5% at $7.40 a bushel as of 07:15 GMT (08:15 UK time).

'Good test weights'

That helped wheat recover some ground from pastings at the hands of Russia's return to grain exports, rain relief for dry European crops, and Argentina's decision to approve a further 400,000 tonnes in exports.

Furthermore, there is the firm start to the US winter wheat harvest – both on pace and quality – to factor in, revitalising supplies.

"The US harvest has reached north of the Oklahoma-Kansas border, with most of the heaviest activity taking place in northern and central Oklahoma," Dave Lehl at Benson Quinn Commodities said.

"The story of this year's crop still seems to be one of good test weights and protein but lower yields," the test weight point being how well bushels, which are actually a volume measure, convert into tonnes.

And the lower yields bit is not a surprise, given the challenge that winter crops in the likes of Kansas and Oklahoma have received from dry weather.

'Result of poor demand'

Chicago wheat for July gained 0.3% to $7.36 a bushel, with the Kansas equivalent up 0.1% at $8.75 a bushel.

The Minneapolis July [spring wheat] contract, which has been volatility's friend of late thanks to the slow pace of US spring sowings, was unchanged at $9.84 ¾ a bushel.

In Chicago, soybeans were the laggard, easing 0.2% to $13.91 ½ a bushel for July, with headway limited by the prospect of the USDA Wasde revisions, while technical factors offer a limit to downside, with the 100-day moving average at $13.83 ½ a bushel.

Even New York


was, relatively, slow in its movement, adding 0.6% to 149.58 cents a pound for July and 0.4% to 130.45 cents a pound for December, following two successive sessions when it has closed down the exchange maximum.

"The current bearish performance in the cotton market is squarely the result of poor demand, which has resulted in net cancellations of US cotton exports for the past 10 consecutive weeks," Mr Mathews said.

"As a result, the demand side of the USDA's Wasde report will be heavily scrutinised."

Data later

As for later on, there is a batch of


data due, and after the close the release of the Federal Reserve's so-called Beige Book on the US economy.

And of course, there will be any changes in weather patterns to look out for. One factor is Europe's wetter spell, which says "is about to come to an end".

"The big issue is how dry will the 6-10 day and 11-15 day be? Will it be a return to the super dry [weather] Europe saw in March, April, May, or have we moved into a seasonal pattern?"

One model, at least, is indicating a "dry pattern returning for most of Europe" from around June 20.


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