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Morning markets: crops slow descent, amid China corn worries

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Agricultural commodities did better on Wednesday at riding out the choppy financial market conditions.

The storm was whipped up by China at the start of the week coming out with a disappointing growth forecast, and exacerbated by fears over the delivery of the Greek debt deal, against a background of elevated energy prices.

As Barclays Capital put it: "The correction likely reflects concerns about the Greek private sector involvement, Chinese growth and high oil prices.

However, the bank added that "these concerns are not new and, so far, they are more likely to reflect profit-taking than a fundamentally driven repricing of risk".

Share reaction


continued to fall in Asia, after a 1.6% drop in the Dow Jones Industrial Average overnight.

Stocks dropped 0.6% in Tokyo, 0.7% in Shanghai, and 0.9% in Seoul.

But they managed some resilience in early deals in Europe.

And that was pretty much the mood in agricultural commodity markets too, with some extra help provided by a


that eased 0.3%, making dollar-denominated assets more competitive to buyers in other currencies, besides being a symbol of investor calm.

Chinese sowings

A narrow trading range saw, for instance, Chicago


for May stand a modest 0.75 cents lower, at $6.54 ¼ a bushel, as of 09:00 GMT.

There were some idea of higher sowings of the grain in Heilongjiang, the top corn-growing state in China, the second-ranked producing country, whose supplies of the crop have soared back up the trading agenda.

Sui Fengfu, director of the General Bureau of State Farms, said that Heilongjiang, whose corn output last year was equivalent to that of Argentina, would "slightly" increase its corn acreage, while trimming



Still, this is at a time of heightened drought concerns in Heilongjiang and surrounding areas of China's north east.

'First step demand rationing'

Indeed, whatever the government may say about comfortable stocks of the grain, the market appears to be taking a different tack.

On China's Dalian futures market, the "corn curve has started to backwardate - ie the front end getting higher than back end", Scott Briggs at Australia & New Zealand Bank said, terming this the "first step in the demand rationing process".

The premium of the July contract over the September lot has risen some 40 yuan a tonne, or $0.15-16 a bushel, since the start of February.

"It's nothing compared to the US," where the gap between May and September corn contracts "spiked from mid-$0.70s to mid-$0.90s a bushel in the last week or so of February.

"But it is still potentially a leading indicator that the drier than normal conditions in the north eastern corn belt are starting to bite into crop expectations," Mr Briggs said.

Stocks downgrade?

Corn's resilience helped Chicago


stem downward progress too, easing 1 cent to $6.56 ¾ a bushel for May, with some hopes too of a downgrade on Friday to the US Department of Agriculture's estimate of world wheat inventories, in its monthly Wasde crop report.

"Many analysts believe the USDA will trim its estimates of 2011-12 US and world wheat stocks in this Friday's Wasde," Luke Mathews said, noting expectations of a 500,000-tonne downgrade to 212.6m tonnes.

That's small, but would at least signal an end to the relentless upward revisions to the world wheat inventory figure, from levels below 200m tonnes.

Furthermore, much US winter wheat still needs rain.

"Weather conditions in North America still need to improve with dryness persisting in the southwest US Great Plains, the US northern plains and the Canadian Prairies," Mr Mathews said.

Brazilian record

Soybeans for May eased 0.2% to $13.34 ¾ a bushel, feeling some pressure from data showing that, however disappointing Brazil's crop turns out to be, its exports are doing fine for now,

Last month was a record February for Brazilian soybean exports, which hit 1.56m tonnes, Secex said, taking the total so far in 2011-12 to 10m tonnes, more than double the 4.04m tonnes by this time last season.

"This continues to highlight the strength of demand for Brazilian soybeans," ANZ said.

Signally, Chicago


for May fell. The feed, up 17% so far in 2012 on a front contract basis, has been a big support for soybeans, lifted by South America's disappointing crop prospects, and China's hog herd rebuild.

"If soymeal rallies, so will soybeans," Mike Mawdsley at Market 1 said, noting meal had come within an ace of its January high of $366.00 a short ton, a key technical point.

But meal didn't rally, falling 0.7% to $363.50 a short ton.

'Appreciating prices'

This time, it was


- which has lagged, with a gain of less than 1% this year - which did better, up 0.5% at 53.53 cents a pound.

In Kuala Lumpur, rival vegetable oil

palm oil

gained too, up 0.1% at 3,248 ringgit a tonne, helped by comments from leading analyst Dorab Mistry that prices would hit 4,000 ringgit a tonne by the end of June, boosted by strong demand from India.

The comments follow a forecast on Tuesday from Oil World of a boost from use of vegetable oils in making biofuels.

"The further increase in South American biodiesel production despite the sharply reduced soybean production will erode South American soyoil exports," Oil World said.

"This will further raise the global dependence on palm oil and contribute to appreciating prices of soyoil, palm oil and other oils and fats."

'Widespread scepticism'

However, in New York,


gave back more of Monday's gains, on India's export ban, amid ideas that farm minister Sharad Pawar might succeed in getting the curbs removed.

"There is widespread scepticism about how long the ban will endure given the Indian farm minister has openly criticised the policy and wants the ban revoked," Luke Mathews at Commonwealth Bank of Australia said.

Cotton for May fell 1.4% to 90.10 cents a pound.


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