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Morning markets: crops revive amid mounting weather concerns

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A bit of a revival in agricultural commodities early on Wednesday, after their drubbing in the previous session, was not a complete surprise.

After all, as Benson Quinn Commodities and many others put it, "from a fundamental standpoint, little has changed from Monday", when


futures set a fresh record in Chicago.

And some of the external headwinds which tested the range of markets subsided. The situation at Japan's Fukushima nuclear plant appears to have subsided.

While Japan did downgrade its economic outlook, following last month's earthquake and tsunami, such a move had been expected. Indeed, Tokyo shares closed 0.7% higher.

China cancellations

The surprise was that


were leading the rebound, with Chicago's May lot up 0.8% at $13.40 ΒΌ a bushel at 07:25 GMT (08:25 UK time) and the new crop November contract up 0.9% at $13.56 a bushel.

This was one crop where the fundamentals might appear to be deteriorating, with hopes rising for the South American harvest, and waning for Chinese demand.

Indeed, Chinese buyers, faced with negative crush margins, were reported as cancelling at least three soybean cargoes last month, and in talks to ditch or defer a further 10 from South America.

Instead, Beijing has moved to sell 3m tonnes of domestic soybeans from state reserves, at prices cheaper than the oilseed can be imported for.

Oil factor

Certainly, analysts had thought prices had got low enough.

"Demand rationing should offer a floor around the $13-a-bushel level if geo-political marketplace remains stable," Kim Rugel at Benson Quinn said.

But two thoughts present themselves as more obvious explanations for soybeans' strength. The first is that


was higher, a factor in a crop which ends up to a large degree in biodiesel.

New York crude revived close to $107 a barrel after data showing a sharp fall in US gasoline inventories.

And investors may be taking a more bullish tack over those Chinese state soybean sales, which after all support demand, rather than its destruction from high prices.

US snow ahead?

Reasons for supporting corn and


were easier to find, notably the US weather, which, for now, is more important for grains than soybeans, which are later sown.

"Step back and look at weather - it still looks like a slow go over the next couple weeks," Mike Mawdsley at Market 1 said.

"Wet is forecast for Illinois/Indiana, cold and possible snow is slated for the Northern regions this weekend."

Jerry Gidel at North America Risk Management Services said: "That would get people excited on the progress of plantings."

Meanwhile, forecasts are dry for the southern US, testing cotton sowings as well as the hard red winter wheat already in the ground, in Europe, in China's wheat belt, with Canada also set for moisture when, with spring sowings ahead, it does not need them.

Too dry, too wet

In Paris, Agritel said: "The weather market underpins the market with dry conditions still prevailing in northern Europe."

And in Australia, Australia & New Zealand Bank pointed out unhelpful weather on the eve of the start of the autumn sowings season.

"Western Australia rainfall has been disappointing over the last week," the bank said, with little rain expected until at least the middle of next week.

"On the east coast it's almost the opposite problem. A large part of the New South Wales wheat belt received up to 25mm of rain, while parts of central Victoria received 50mm."

Mr Mawdsley summed it up so: "In a year we needed all cylinders firing, a couple of sparkplugs aren't even working."

Chicago corn for May recovered 0.7% to $7.58 a bushel, with wheat adding 0.7% to $7.65 a bushel, maintaining its narrow premium.

'Poor crop conditions'

New York


recovered similar ground, up 0.7% at 186.80 cents a pound for the most-traded July contract, keeping ahead of its important 50-day moving average line, at around 184.60 cents a pound.

Concerns for Chinese demand beset the fibre too, with reports that imports fell 15% year-on-year in March to 276,400 tonnes.

However, "worries over poor crop conditions in Texas [the main US cotton-growing state] may act as support," especially for longer-dated cotton lots, Luke Mathews at Commonwealth Bank of Australia said. Indeed, the December lot added 1.4% to 137.42 cents a pound.


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