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Morning markets: crop rally slows as headwinds take a toll

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Tuesday wasn't exactly a Turnaround one early on, reversing a strong trend of the previous session and fulfilling a start-of-the-week pattern that Chicago traders attest to.

But buyers were certainly in far less evidence that they were on Monday, when Chicago corn jumped to match its record high, while wheat soared 4%.

Farm commodities stood generally ahead. But bar

rubber

, which soared again, up 3.2% to 458.20 yen a kilogramme in Tokyo for the benchmark September lot, they had only put one foot on positive ground.

'On their guard'

One fear was that, after a rally which bought corn futures, for instance, gains of 15% in three sessions, investors might be in a mood to cash in.

"We are concerned that the corn was overbought at these levels, which may lead to technical corrections," Ker Chung Yang at Phillip Futures in Singapore said.

"Investors may need to be on their guard for breaks in crop prices, as investors with long positions book profits."

Crude thinking

But also, one of the reasons cited for rubber's popularity - the rising price of

oil

, which makes synthetic alternatives more expensive – has nudged back towards the forefront of investor thinking, with Brent crude above $120 a barrel following supply hiccups in Gabon, a small African producer.

Tokyo shares closed down 1.1%.

Higher oil prices have, up to now, been negative for farm commodities too, despite the use of many in making biofuels, a disconnect blamed on a broad-brush fund trade of "buy energy, sell other commodities".

(That said, there are signs this may be changing, with Luke Mathews at Commonwealth Bank of Australia, for instance, citing higher oil as supporting

sugar

prices.

"The crude oil price is incentivising the production of ethanol over sugar, raising the prospect of lower than expected sugar output," he said.)

Corn stalls

As another headwind, the

dollar

was a touch stronger too, making dollar-denominated assets such as Chicago agricultural commodities less competitive as exports.

So

corn

put in a relatively soft performance, for a crop whose stocks were found 170m bushels light of market forecasts by the US Department of Agriculture last week, a factor expected to feed through into a downgrade in official forecasts for stocks at the close of 2010-11.

The USDA will on Friday release its latest Wasde report on global supply and demand, which is, according to estimates seen by Agrimoney.com, expected to lower the forecast for year end US corn stocks from 675m bushels to 500m-603m bushels.

Chicago's May contract added 0.2% to $7.61 ½ a bushel for May as of 08:30 GMT, and failing to touch yet the $7.65-a-bushel record matched in the last session.

New crop December wheat even lost ground, albeit only 0.25 cents to $6.45 ¼ a bushel.

Progress reports

Wheat

did its bit to ensure it maintains a premium over corn, adding 0.3% to $7.92 a bushel for May, helped by official data showing that the US winter wheat crop is in the worst condition for nine years.

"Wheat continues to rally on corn's coat-tails. However, worsening US crop weather is also providing internal support to the wheat market," Mr Mathews said.

Furthermore, there is talk that Russian data has shown spring wheat sowings running at half the pace of a year ago – a fate which may soon befall North American plantings if fears of flooding are realised.

"To the north, cold and wet conditions in the northern plains keep talk of flooding and delayed plantings," Benson Quinn Commodities said.

Cancelled cargos?

Soybeans

, meanwhile, gained 0.2% to $13.86 ¾ a bushel for May and were static at $13.89 a bushel for the new crop November contract, at least keeping up this time.

The oilseed has been a relatively weak performer, despite coming in with its own weak US stocks data last week, and lower-than-expected plantings data too, for fears of a slowdown in demand from China, the top importer.

"Some private analysts have started to lower their export projections due to unconfirmed Chinese cancellations," Benson Quinn's Kim Rugel said, noting expectations that Friday's Wasde report could lift the estimate for US soybean stocks as of the close of 2010-11 by 20m-40m bushels.

"With demand rationing taking place on a domestic and global scale, soybeans are in current position of being a follower to corn and wheat market till planting of soybean crop begins and US weather forecast comes more into focus."

Elsewhere in the oilseeds complex, Kuala Lumpur palm oil shed 1.3% to 3,337 ringgit a tonne.

By Agrimoney.com

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