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Morning markets: crops' resilience to Greece fears crumbles

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Agricultural commodities couldn't resist gravity for ever.

After crops in the first two sessions of the week succeeded in dodging the bullet of eurozone instability, following the election of a Socialist president in France and growing fears that Greece will leave the eurozone, it was third time lucky for bears.

Farm commodities opened weak, succumbing to the broader round of selling in risk assets which brought further losses on Wednesday to shares, which closed down 3.1% in Seoul and 1.1% in Tokyo and 2.4% in Sydney.

"Markets seem to have again fallen hostage to Greek political dynamics," Barclays Capital said.

"To arrest market fears, proactive measures are needed. Unfortunately, they seem nowhere in sight," implying that "risky assets are likely to trade erratically at best, with a bias to underperform".

'Weather concerns'

Not that the losses were huge in crops, with investors keeping an eye on concerns over dryness in the southern US and, in particular, Russia.

While the first rains of a bout "arrived last night in Ukraine", they may only reach as far as some southern areas of Russia, consultancy Agritel said.

"If the weather concerns could ease in Ukraine, they could actually be increasing in Russia."

In the US, Jonathan Watters at broker Benson Quinn Commodities termed Russia's dryness "the story that continues to catch the attention of the market.

"Everybody remembers what happened in 2010 and is wary of getting in the way of a real problem from the world's most important exporter."

'Deterioration of the crop'

He added: "Stories continue to circulate about the deterioration of the crop in southern areas, with drought concerns continuing to mount.

"We are a long ways away from 2010 and rain continues to show up in the forecast over the next week, but ideas are that bushels have already been lost from USDA's most recent 56m-tonne crop estimate."

On the US weather, Lynette Tan at Phillip Futures said: "Hot and dry weather expected in US Plains throughout the week, which could be harmful to developing hard red winter wheat crop in Kansas.

"Crops in southern areas of Plains such as Oklahoma and Texas are likely mature enough that dryness this week will cause little harm."

Wheat for July eased 0.1% to $6.07 ¾ a bushel in Chicago, as of 08:10 UK time (02:10 Chicago time), while falling 0.1% in Kansas to $6.26 ¾ a bushel.

'False sense of security'

Corn

has had its concerns over weather too, notably frosts which last month meant that "over 50 counties in Illinois and Indiana reported re-seeding of acres", according to Tim Hannagan at PFGBest.

"Then cold evenings until this week leant to slowly emergence. Not a good start," he said, joining sceptics too over the US Department of Agriculture's upgrade last week of 2 bushels per acre, to 166 bushels per acre, in its estimate for this year's corn yield.

"How can you do that without knowing the weather in advance?" Mr Hannagan said, warning that early sowings had injected a "false sense of security" into yield hopes.

Export absence

Still, one factor questioning higher corn, besides wheat's decline, is the lack of demand showing up for the grain through the USDA's daily reporting system.

"To this point, daily reporting has not offered much evidence that foreign demand for US old crop corn is high, but prices near these levels have triggered demand in the recent past," Benson Quinn said.

Furthermore, the CNGOIC, the official Chinese crop bureau, overnight came in with an estimate of 197.5m tonnes for the country's corn harvest this year, a record, and above the USDA forecast lsat week of a 193.0m-tonne crop.

Corn fell 0.7% for July delivery, to $5.93 ¼ a bushel, and by 1.1% for December to $5.08 ¾ a bushel.

Soybeans slip

The CNGOIC estimated the Chinese

soybean

crop at 13m tonnes, below the USDA forecast of 13.8m tonnes, and in theory a support for prices of the oilseed, given the country's already-huge import needs.

But given the huge, if no longer record, net long position that funds hold in the oilseed, it has been vulnerable to risk-off liquidation, which resumed on Wednesday.

The July contract fell 1.3% to $13.94 ¾ a bushel, and the November contract 1.3% to $12.87 ¾ a bushel.

Staying in the oilseeds complex, Kuala Lumpur

palm oil

resumed its tumble too, dropping 1.3% to 3,168 ringgit a tonne, if remaining above Monday's two-month low.

Europe is a huge importer of the palm oil, making the vegetable oil's values particularly vulnerable to eurozone jitters.

'Significant headwind'

Soft commodities eased too, with

cotton

shedding 0.5% to 78.78 cents a pound for July delivery.

"The current global economic environment, which appears to be sitting on a knife edge, remains the most significant headwind for global fibre markets," Luke Mathews at Commonwealth Bank of Australia said.

And raw

sugar

declined 0.7% to 20.26 cents a pound, falling with concerns for the next cane harvest in Maharashtra, India's top producing state, where dry weather has been an issue.

Mr Mathews said: "Analysts have said that crop area may decline by as much as 10%, yet there is little consistency amongst forecasters.

"The most important determinant of Indian production, the monsoon rains from June to September, are forecast to be in line with the 50-year average, according to the Indian Meteorological Department.

"We are not worried about Indian production prospects as long as monsoon rains remain forecast in line with normal."

By Agrimoney.com

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