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Morning markets: crops find resolve as Italy spooks markets

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The financial world revolved around one story on Thursday, and it was not a happy one.

The crash of Italy's rapid descent into debt crisis, evident in the ascent in its bond yields above the danger level of 7%, reverberated throughout markets.

Its broad effects included a limit-down move by


in Shanghai and a


maelstrom. Tokyo shares closed down 2.9%, Seoul shares down 4.9%, with Singapore stocks down 3.1% in late deals.

The declines followed a 3.2% tumble in New York's Dow Jones Industrial Average overnight, and signally a 32% jump in the


index, investors' "gauge of fear".

China's imports rise

Against that backdrop, agricultural commodities weren't doing too badly at all.

Indeed, many showed gains, with

crude palm oil

adding 0.9% to 3,0462 ringgit a tonne in Kuala Lumpur as of 08:30 GMT, boosted by data showing a surprise drop in Malaysia's stocks of the vegetable oil.

Unexpectedly strong exports helped inventories in the second-ranked palm producer ease 1.6% to 2.10m tonnes, rather than showing the 5% rise analysts had expected.

New York


clung on to positive territory too, with a gain of 0.3% to 97.50 cents a pound for December delivery, helped by data showing a 28.7% jump in Chinese imports of raw materials last month. China is the top buyer of cotton.

This helped overcome some more downbeat assessments emerging of revisions on Wednesday by the US Department of Agriculture to world cotton estimates, in its Wasde crop report.

Luke Mathews at Commonwealth Bank of Australia termed the Wasde "bearish for cotton", unlike a "neutral" rating by Rabobank, noting that "US export demand was cut and global cotton stocks were revised higher once again".

"The global stock situation does not support 100 cents-a-pound prices," Mr Mathews added.

'Alarming levels'

And the Chicago grains rebounded from early losses, amid a growing feeling that the


data, showing a yield estimate below traders' forecasts but inventories above, were towards the positive end of the range of initial reaction.

"Corn supplies remain at alarming levels," Mr Mathews said, noting that the USDA's inventory estimate of 843m bushels was still the "second tightest level in history".

"Demand rationing is necessary at such tight inventories, and this would support prices.

"The key risk is that the current economic situation continues to deteriorate, causing demand to contract, even in the absence of higher prices."

Lynette Tan at Phillip Futures was also reasonably upbeat about corn prices, saying they had been "pretty resilient compared to the rest of the commodities complex and could continue to trade range-bound, following the patterns for the last two weeks".

'Bearish picture'

In fact, Chicago's December lot added 0.1% to $6.56 ¾ a bushel.

And that provided some support for


too, despite the Wasde inching higher the forecast for world inventories at the close of 2011-12, to a 10-year high of 202.6m tonnes.

"The USDA continues to paint a bearish picture for wheat prices. World wheat stocks remain at comfortable levels, and if prices are to rise, they will most likely be led by corn," Mr Mathews said.

Indeed, the grain was reluctant in Chicago to let its atypical discount to corn expand much further, falling, but only by 0.4 cents to $6.42 ½ a bushel for December delivery.

One-month low


were again the worst of the main Chicago crops, if not disastrously so.

Sure, the oilseed had some bullish news in an estimate from Conab, the Brazilian crop bureau, that the domestic 2011-12 harvest would come in at 71.48m-72.96m tonnes, below the USDA's forecast upgraded to 75.0m tonnes in the Wasde.

However, the Conab data is being widely viewed as pessimistic.

And soybeans had a knock from the Chinese trade data which showed imports falling 7.7% month on month in October, to 4.13m tonnes, below market forecasts. China is the top soybean buyer.

"The market needs stability in outside macros and South American weather concerns to find fresh buying support," Kim Rugel at Benson Quinn Commodities said.

It didn't get it, fostering a 0.2% dip to $11.83 ½ a bushel for Chicago's January lot, after setting a one-month low of $11.76 ¾ a bushel earlier

Data later

Trade data could yet give soybeans a fillip, if weekly US export sales announced later beat the 400,000-600,000 tonnes that analysts are expecting, to erode the memory of a dismal 209,000 tonnes last time.

Corn export sales are expected at 550,000-750,000 tonnes, in line with the previous week's 623,000 tonnes, and wheat at 350,000-450,000 tonnes, an improvement on the 320,000 tonnes last time.


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