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Morning markets: crops struggle as China worries persist

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No turnaround on this Tuesday.

China's disappointing economic growth forecast released on Monday - of 7.5% for this year, the first drop in its target below 8% since 2004 – continued to concern investors.

Commonwealth Bank of Australia took a more sanguine view, saying market's negative reaction to the figure was "overdone because the 2012 GDP growth target is consistent with the new five-year plan that was approved in March 2011".

But most investors felt justified in pushing

shares

lower again, by 0.6% in Tokyo, 0.8% in Seoul, 1.7% in Singapore, and 1.4% in Shanghai and Sydney.

The safe haven of the

dollar

ticked higher, by 0.2%, adding extra pressure to dollar denominated commodities by making them less competitive to buyers in other currencies.

Sugar drops

So the default move was downwards.

And Australia's official commodities bureau, Abares, also fed the bears with some upbeat comments on its domestic crop production prospects.

In New York, raw

sugar

for May fell 0.2% to 24.63 cents a pound as of 09:00 GMT, as Abares added to the pressure on prices from India's announcement on Monday of a further 1m tonnes of exports, and Czarnikow's lifting to 7.7m tonnes of its estimate for the world production surplus in 2011-12.

Abares at an annual conference forecast higher sugar exports, saying recent flooding in cane regions "was confined to northern News South Wales which accounts for 5% of sugar production".

Crop progress

In Chicago,

wheat

for May dropped 0.6% to $6.68 a bushel.

Abares had a beefy forecast for Australia wheat output too, forecasting an above-average crop of 26m tonnes in 2012-13, if one a little lower than the 2011-12 record of 29.5m tonnes.

That hardly helped a crop already under pressure from huge world stocks and improvement in conditions of winter wheat on the US southern Plains.

US officials overnight revealed an improvement in the Texas crop to 33% in "good" or "excellent" health, up two points week on week.

In Kansas, while the rating has declined over the past month, by two points to 50% "good" or "excellent", officials highlighted that the crop was "still looking better than last year".

Chinese imports question

And that weighed a bit on Chicago

corn

too, which rowed back on some of Monday's gains, which on a near-contract basis, left it at its highest close since September.

Furthermore, the grain felt some pressure by a denial from China's State Grain Administration that the country needed to import much of it.

"We will not import corn by a large volume. Corn is not an agriculture product which China is short of," SGA director Nie Zhengbang said.

While such comments are often take with a spoonful, or four, of salt, coming on the heels of cool comments from Chinese crop trader Cofco too they took some of the steam out of market rumours of Chinese purchases in the wings.

Jon Michalscheck at Benson Quinn Commodities clocked talk that "China could enter the global market at any time to purchased additional corn tonnage."

'Difficult to read'

He added: "It's difficult to read the Chinese government as to how determined they will be in its attempt to get their domestic corn prices under control which could lead to the market chasing rumours and 'what if' scenarios throughout the crop year and well into next."

"For the moment the market seems to be attempting to slow down old crop demand until such time that they can get a better handle on what type of supply base the world will be looking at for the 2013."

Chicago's expiring March contract outperformed again, but only by falling 0.2% to $6.65 a bushel, less than the 0.3% which the better-traded May lot dropped, to $6.59 a bushel.

The new crop December contract fell 0.4% to $5.69 a bushel.

Sell stops not unearthed

However,

soybeans

bucked the trend in Chicago, rising 0.3% to $13.28 ½ a bushel for May delivery, cheered by a performance in the last session which, while negative, did not accelerate into a rout that some had feared, given that the oilseed was considered technically "overbought".

"Technically, Monday's trade was consolidative and not the downside reversal needed to correct overbought technicals," Kim Rugal at Benson Quinn said.

He also flagged "the inability of the market to hunt out the underlying sell stops" in the last session - ie that a shift lower did not trigger a rash of sell orders, and indicate an underlying willingness by investors to sell.

Key to future progress may be the May contract's ability to push through the $13.33-a-bushel mark, a key point for followers of Fibonacci analysis in representing the 62% retracement level from the lot's high hit in August last year.

In the last session that "held the rally", Mike Mawdsley at Market 1 noted, contributing to a retreat to only the lot's third negative close in five weeks.

'Absurd' ban

In New York,

cotton

beat the negative pressure too, adding to limit-up gains in the last session fostered by what Commonwealth Bank of Australia's Luke Mathews termed India's "absurd" export ban.

The ban "caught the market off guard because previous reports indicated India was set for record cotton production and an increase in inventories this year", Mr Mathews said.

"India's standing as the world's second largest cotton exporter, with a roughly 17% market share, adds significance to this move."

OK, there is a negative on the way, with the Ice exchange raising margin requirements for cotton investors from Wednesday, meaning they must put down more money as collateral against contracts.

Still, the May lot added 1.7% to 93.78 cents a pound.

By Agrimoney.com

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