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Morning markets: crops battle revived eurozone debt fears

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rediscover forward movement, after a six-session losing streak (Chicago's December contract has closed higher only once this month) which has cut 13% off its price?

The chances of the grain defying gravity dipped with the re-emergence of eurozone debt fears.

Ideas that Greece will default have gained credibility, sufficient to prompt Moody's to cut the credit rating of Societe Generale and Credit Agricole (both relatively large holders of Greek debt).

Greek prime minister George Papandreou, German chancellor Angela Merkel, and French president Nicolas Sarkozy are due later on Wednesday to discuss the Greek debt problems, which some believe will lead to a fresh cash injection rather than a descent into bankruptcy.

Risk-off day

Financial markets show a classic "risk-off" reaction. Tokyo


closed down 1.1%, with Seoul stocks tumbling 3.5%.



got back on the front foot, gaining 0.4% against a basket of currencies, and so enhancing pressure on dollar-denominated assets by making them more expensive as exports.

New York


fell 1.0% nearly back to $89 a barrel.

At least most farm commodities did better than that.

'Demand triggered'

Wheat actually was one of the more resilient crops, if only in part for technical reasons, with bears and bulls battling over the $7.00-a-bushel mark for Chicago's December lot.

Still, there were some fundamental cards to grab on, albeit amid a rising tide of hopes for the world harvest.

"Lower wheat prices have triggered demand," Brian Henry at Benson Quinn Commodities noted.

Recent buyers have included Libya, albeit of Russian wheat, with Syria and Egypt, the top wheat importer, in tender, and Iraq seen likely to re-emerge soon.

And this time, the US is in with a shout to win an Egyptian tender, given that it is asking specifically for US soft white wheat (besides a separate request for offers on conventional milling wheat too).

That said, America failed to offer any soft white wheat the last time Egypt asked for it, last month.

'More rains needed'

Furthermore, Mr Henry warned farmers in the US southern Plains against getting too excited about drought relief for areas scheduled to sow hard red winter wheat.

"Potential rain events slated for late this week in the southern plains are expected to be beneficial. However, more will be needed," he said.

And the frost scheduled for this week, even if looking less threatening than it did, "could damage some of the latest wheat" in the northern plains.

Chicago wheat for December stood unchanged at $7.02 a bushel at 07:50 GMT (08:50 UK time).

'Noose around corn's neck'

And that was somewhat helpful for


given, as Mike Mawdsley at Market 1 put it, "wheat has been a noose around December corn's neck lately".

"If wheat can't find a low it will just keep pulling corn lower," he said.

But, as Luke Mathews at Commonwealth Bank of Australia noted, "most forecasters believe that the US corn crop may escape the worst of the damage" from this week's freeze.

And with prices still historically high, "although the tight supply outlook is still bullish, there are concerns that high prices are rationing demand for US supplies", Lynette Tan at Phillip Futures said.

More on that score will be known with weekly ethanol production data due later.

Also, Argentina's farm minister came in with an upbeat forecast for the corn crop in the world's second-ranked soybean exporter, pegging it at 30m tonnes, ahead of a US Department of Agriculture estimate of 27.5m tonnes.

Chicago's December lot eased 0.2% to $7.21 ¾ a bushel.

'Surprising resilience'

Still, that was better than


did, falling 0.5% to $13.84 ½ a bushel for November, sapped by the downgraded threat of frost, of which the oilseed is the most vulnerable, with technical factors potentially playing a part too.

Soybeans' resilience in the last session reflected in part the unwinding of short soybean, long corn spreads.

However, overlaid on to this is the huge potential selling pressure represented by speculative positions in the oilseed which were at a record high as of last week, according to Australia & New Zealand Bank analysis of regulatory data.

"Given the record speculative length in soybeans, this [resilience] is surprising and could mean further volatility for soybeans if sentiment changes," Paul Deane at ANZ said.

Also, Argentina's farm minister came in with an upbeat forecast for the crop in the world's third-ranked soybean exporter, pegging it at

Softer cotton

Elsewhere in the oilseeds complex,

palm oil

for November dipped too, down 0.5% at 3,004 ringgit a tonne in Kuala Lumpur, and dropping at one point back below 3,000 ringgit a tonne.

And, in New York,


lost 0.5% to 112.49 cents a pound for December delivery, losing for now at least its regained ability to buck the trend.

The fibre was not helped by lower prices on the Zhengzhou exchange in China, the top producer, consumer and importer, where January cotton fell 0.4% to 21,335 yuan a tonne.


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