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Morning markets: crops battle downbeat external market mood

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The outlook for farm commodities was not good on Wednesday, as a "risk-off" feel, inspired by a Federal Reserve report, encouraged investors to plump for caution.

The idea that the US central bank would introduce further quantitative easing, as signalled by minutes from the March 13 meeting of its interest rate setting committee, hurt sentiment for many risk assets.


tumbled 2.3% in Tokyo, 1.5% in Seoul and by 0.6% in Singapore.

And London


dropped more than 1%, with oil showing smaller losses.

'Trade sort out'

The sentiment fed through into soft commodities. Raw


for May eased 0.2% to 24.20 cents a pound in New York, where


for May dropped 0.5% to 92.21 cents a pound, on track potentially for a fifth successive session of decline.

But some Chicago contracts fared better, continuing to be boosted by investor positioning following Friday's US Department of Agriculture reports, which showed grain inventories lower than expected, but US farmers set to plant a huge


acreage, the biggest area since 1937.

"The trade is still attempting to sort out how much if any demand needs to be rationed out of the remaining old crop due to the tighter-than-expected quarterly stocks reports data from this past Friday," Jon Michalscheck at Benson Quinn Commodities said.

"At the same time the market is torn with how much risk premium needs to be maintained in the new crop forward contracts based on the March new crop acreage estimate of 95.9m acres."

Corn vs soybeans

The answer as of 08:50 GMT was a continued purchase of Chicago's old-crop May lot, which added 0.4% to $6.61 a bushel, taking its recovery since Friday's data nearly to 10%.

But the new crop December contract returned to the back foot, after in the last session gaining some ground against its arch enemy - new crop November


- in the battle for acres, with the ratio between the two lots seen as having a big influence on which of the crops US farmers really plump for.

The December corn lot eased 0.2% to $5.44 ¼ a bushel, after Informa Economics said that an overall swing in prices in favour of soybeans over the last month had done little to boost the prospect of a swing to the oilseed from the grain in sowings plans.

While corn, which had looked to return $120-an-acre more than soybeans earlier on in the year, now may have "no advantage… it doesn't lend for putting in more soybean acres", Informa Economics chief executive Bruce Scherr said.

Prices would have to go further in soybeans' direction to provoke a switch, he said.

'Hardest thing for a farmer…'

Furthermore, there is a general expectation that, even after a disappointing rate of corn sowings shown up in USDA data on Monday, the pace of planting the grain will still pick up as farmers exploit benign weather, and deadlines for eligibility on insurance pass.

In Iowa, Mike Mawdsley, at broker Market 1, said: "I saw a couple planters running on my way home from work yesterday.

"If we don't see rain soon to slow us down it will be hard to keep farmers from slowing down. Hardest thing for a farmer is watching the neighbour get ahead of him."

With November soybeans also falling 0.2%, to $13.75 ½ a bushel, the new crop soybean: corn ratio remained at 2.53, up from levels below 2.0 late last year.

Downgrades keep coming

Old crop soybeans eased a touch too, as investors pondered whether the last session's dip in prices was really a pause in a rising trend, or the start of something more ominous.

Still, the oilseed continued to get some support from weakened expectations for South America's harvests, with Agroconsult late on Tuesday cutting its estimate for Brazil's crop by 1.9m tonnes to 65.2m tonnes.

This followed an 860,000-tonne downgrade by Celeres in its estimates, albeit to 68.0m tonnes, at the top of the range of market expectations.

In Argentina, the Rosario grains exchange cut its estimate for domestic soybean output by 1.4m tonnes to 43.1m tonnes, well below the USDA forecast of 46.5m tonnes (which could be revised when the department releases its next monthly Wasde crop report, on Tuesday).

May soybeans eased 0.2% to $14.13 ¾ a bushel.

'Rapid development'

Where investors were more certain in selling was in


, given the improved condition of the US crop, and hopes for Europe's harvest too, given rain hitting much of the continent (including Hereford, western England, where is based).

"Heavy rainfall through March and above-normal temperatures - the warmest March on record - aided the rapid development of US crops and pasture," Paul Deane at Australia & New Zealand Bank said.

Lynette Tan at Phillip Futures said: "Significant rainfall was being received this week in the US Plains which will further boost growth and development of the hard red winter wheat crop."

Mike Mawdsley said: "Conditions are excellent and rains continue to be in the forecast - and no freezing temperatures," important when strong early development has left crops liable to damage from a late frost.

Chicago wheat for May shed 0.7% to $6.53 ¼ a bushel.

Fresh high

In Kuala Lumpur,

palm oil

extended its winning run, touching a fresh one-year high of 3,574 ringgit a tonne before easing back to 3,549 ringgit a tonne, up 0.5% on the day.

Can it avoid the round of selling which hit late in the last session when, as Ker Chung Yang at Philip Futures noted, "traders scrambled to lock in profit"?


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