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Morning markets: demand fears prolong corn's agony

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The financial market funk stirred up by badly-received US manufacturing and inflation data, and wheels flying off the (latest) rescue initiative for debt-saddled Greece, showed signs of settling down on Thursday.

Sure, Asian stock markets reacted to lower closes by Western peers overnight, with Tokyo's Nikkei index matching the 1.7% drop in Wall Street's S&P 500 index.

But the

dollar

slowed its ascent, as the hunger for (apparently) a safe haven asset waned.

The greenback added 0.2% against a basket of currencies, not favourable for dollar-denominated assets, in making them less competitive as exports, but nowhere near as deleterious as the last session's 1.7% gains.

Funds pack their bags

That allowed

oil

off the hook a little, with New York crude recovering 0.2% to reclaim the $95-a-barrel mark as of 07:20 GMT (08:20 UK time).

Copper

remained under pressure, falling 0.5%. But then, it had escaped relatively unscathed in the last session, when commodities on average tanked 2.3%, as measured by the CRB index.

In agricultural commodity markets Chicago

wheat

, at least, found space to lick its wounds, after falling more than 6% in three sessions, although

corn

remained under pressure, taking its losses this week above 8%.

"The speculative funds had rebuilt net longs in corn during May and some of this length is now leaving the market," Australia & New Zealand Bank said.

Funds have sold an estimated 35,000 corn contracts in the last two days.

Demand dynamics

Demand dynamics explain part of the grains' differing fortunes.

For corn, there are growing signs that high prices have indeed gone a long way to turning buyers off.

Weekly US ethanol data on Wednesday showed production of the biofuel, made nearly all from corn, fell by 35,000 barrels per day to 880,000 barrels per day.

"The corn used for the production during the reporting week was 92.4m bushels. Weekly usage needs to average 104.22m bushels to meet the US Department of Agriculture's current corn for ethanol production estimate for 2010-11," Brian Henry at Benson Quinn Commodities said.

At Phillip Futures, Lynette Tan highlighted "talk of ethanol plants shutting operations due to high prices of corn".

There are signs of the livestock sector baulking too, with data on Friday expected to show placements of cattle on US feedlots in May down 7.5% year on year (although a squeeze on supplies of suitable animals is having an impact here too).

As for foreign demand, more will be known later, when the USDA releases weekly export sales data, which for old crop corn have shown successive falls over the past three weeks.

Importers reemerge

But demand signs have been somewhat better for wheat, with big importers including top-ranked Egypt and Algeria buying this week, and Saudi Arabia tendering, in deals totalling 800,000 tonnes.

Furthermore, there has been growing talk of wheat, which is unusually being traded at a discount to corn, being substituted for its fellow grain by livestock farmers and even ethanol plants.

OK, it's hardly all going wheat's way, given the ongoing US harvest, which is turning out better than many analysts had expected, besides providing a spike in supplies which typically tends to depress prices,

"Sure, we have seen a pick up of wheat sales and tenders around the world. But it's that time of year. As harvest progresses, prices drop," Mike Mawdsley at Market 1 said.

And Benson Quinn highlighted that the "same cool and wet conditions" which are causing farmers to give up on considerable areas of spring wheat sowings "are helping what was planted get off to an excellent start".

Chart signals

Chicago wheat for July eased 0.1% to $7.07 ¾ a bushel while Minneapolis spring wheat added 0.2% to $9.39 a bushel.

That was ahead of corn, which shed a further 0.9% for July to hit $7.19 ¼ a bushel.

The new crop December lot eased 0.1% to $6.65 ¼ a bushel at a time which may, technically, prove crucial, after it fell back towards a long-term trend line, at about $6.60 a bushel.

If this point fails to hold the contract, a May low of $6.15 ½ a bushel "is the next target", Mr Mawdsley said, adding that a close over $7 a bushel "is needed to get the funds fired up again".

The last session pushed the July lot below a clutch of moving averages – nine day, 20 day and 50 day – placed broadly around the $7.50, leaving that a bit in limbo too.

Cap kept?

The same was generally true of near-term

soybeans

, even though the new crop November lot was holding above the 50-day moving average in the last session.

That changed this time, with growing talk that China will not, after all, remove its price caps on cooking oil, of which the likes of

soyoil

and

palm oil

are basic ingredients.

The cap, imposed in November and extended already in April, is now expected to be extended to mid-August to quell the risk of a surge in demand, and inflation risks, ahead of China's mid-Autumn festival.

Chicago's November soybean lot fell 0.8% to $13.55 ¾ a bushel, with the July contract falling in line to $13.53 ¾ a bushel.

Soyoil itself tumbled 1.2% to 56.37 cents a pound for July while, in Kuala Lumpur, palm oil lost 1.8% to 3,212 ringgit a tonne for September, among its lowest levels of the year for a benchmark contract.

By Agrimoney.com

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