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Morning markets: demand hopes keep grains on front foot

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Grain markets got out of bed on Friday in the same mood that they got into it – with demand, and the idea that low prices have prompted more orders of US crops, high on the agenda.

The more bullish mood abroad among investors generally remained intact.

Shares

gained on Asian markets, by 1.0% in Shanghai, 1.1% in Singapore and 1.5% in Tokyo.

The safe haven of the

dollar

extended its decline, if by a modest 0.2% against a basket of currencies as of 08:10 GMT.

As an extra sign of growing confidence, it is worth noting that the

Vix

index, investors' so-called "gauge of fear", ended down 4.8% on Thursday at its lowest since July.

Key data

It was difficult to find fresh evidence to support the more optimistic sentiment, beyond the likes of strong results from US banks, decent US jobs data and well-received French and Spanish bond auctions which supported risk assets in the last session.

Indeed, on Friday, the first indicator on the monthly HSBC manufacturing purchasing managers' index came in at a reading of 48.8, up 0.1 points month on month but still below 50, above which level signals expansion.

Still, agricultural commodities maintained momentum, with

corn

for March up 0.5% at $6.09 a bushel, and March

soybeans

up 0.5% at $12.03 ¼ a bushel, looking for their first close above $12 in 10 days.

Wheat

for March gained 0.6% to $6.09 ½ a bushel helped, in this better market atmosphere, by closing of speculators' plentiful short positions.

Chinese buying spree?

Can they keep it up? The day faces a key test for crops in weekly US export sales data, delayed from their usual Thursday release by the public holiday at the start of the week.

Given the theme of stronger demand, supported on Thursday by the US announcement of the sale of 120,000 tonnes of soybeans to China, 110,000 tonnes of corn to South Korea and 154,700 tonnes of corn to Mexico, these statistics are being looked at especially closely.

There are rumours of other deals too.

"Many in the trade are convinced that upwards of 10-12 cargoes of US soybeans have been traded with the Chinese over the course of the last two days," in addition to the 120,000 tonnes above, Brian Henry at Benson Quinn Commodities said.

As for corn, Paul Deane at Australia & New Zealand Bank noted that "on a delivered basis to South Korean ports, US corn is around $20 a tonne cheaper than it was last week", before price tumbles prompted by US Department of Agriculture data estimating domestic stocks higher than had been expected.

Data later

The latest deals will come too late for inclusion in the US Department of Agriculture report later.

Nonetheless, analysts expect the data to show a jump in corn sales to 550,000-750,000 tonnes, from a littleunder 300,000 tonnes the previous week.

Soybean sales are seen advancing from 434,000 tonnes to 550,000-750,000 tonnes.

Wheat's are seen more in line with the previous 438,000 tonnes, and pegged at 350,000-450,000 tonnes.

'Losses in late-planted soybeans'

Other influences will, of course, include the latest on weather forecasts for South America, where rain relief is expected for dry parts of Argentina and southern Brazil this weekend, but where longer-term outlooks are less benign (if potentially less accurate too).

Besides ideas of a so-called "heat ridge", or an even less benign "heat dome", hitting parts of northern Argentina later in the month one weather model "has been showing a another round of significant heat developing in the first week of February for central and northern Argentina", WxRisk.com said.

Argentina's farm ministry late on Thursday underlined the crop damage the poor weather has caused, saying "there have been losses in late-planted soybean areas, which have received practically no rain since they were sown".

The ministry, which trimmed 200,000 hectares from its estimate for soybean sowings, taking it to 18.8m hectares, also said that yields on some corn could be slashed by 20-50%.

"The corn planted earlier in the season has been hurt the most, as its flowering period coincided with the drought," the ministry said in a monthly report.

'Resistance to chew through'

Also to take into account are chart considerations, with the rebound in crop prices taking them back towards moving average lines, which many investors take significant notice of, and around which automatic buy and sell orders tend to be placed.

"Technically, the market appears to have all the layers of moving average resistance to chew through if the bulls want to make a move," Benson Quinn's Jon Michalscheck said, talking in particular of corn.

"The 40-day moving average is the first line to penetrate and that comes in at $6.12 ½ a bushel, followed by the 10-day at $6.15 ½, 50-day at $6.20, 30-day at $6.24 and the 50-day at $6.29 ¾."

By Agrimoney.com

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