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Morning markets: dollar retreats, easing pressure on crops

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Soybeans

fought back from the edge on Thursday, with other agricultural commodities recovering too, despite further poor economic news – this time from Asia.

Japan's key "tankan" survey of business sentiment showed a worsening mooed, with the headline index reading for big manufacturers, battling a strong yen, dropping to -4, from +2 in September, and below a market expectations of -2.

Separately, China's manufacturing sector was shown shrinking for a second month in December, if less than it did in November. The HSBC's initial purchasing managers' index came in at 49, compared with 47.7 last month, with any figure below 50 indicating contraction.

The data offered little cheer to Asian shares, coming on top of declines in Western markets on Wednesday too. Tokyo's Nikkei index lost 1.7%, Seoul shares 2.1%, Sydney stocks 1.3% and Shanghai stocks 2.1%.

Greenback retreats

But a help for commodities was a retreat in the

dollar

, in which many are denominated, meaning a cheaper dollar makes them more affordable to buyers in other currencies.

The greenback eased 0.4% from the last session's 11-month high, if only on profit taking.

And that helped many commodities to a firm start, including Brent

crude

, which gained more than 1% to pop back above $106 a barrel as of 08:40 GMT.

That was an extra help to farm commodities used in making biofuels, especially given data on Wednesday showing a drop in US corn ethanol production last week, if from a record top to a still-high level of 6.57m barrels for the week.

Corn ethanol

"I don't expect the trade to ring the alarm based on the lighter pace of ethanol production, but they will be monitoring this to see if a trend develops once we get through the holidays," Brian Henry at Benson Quinn Commodities said.

Ethanol groups from January 1 will have to operate without the $0.45-a-gallon blenders' credit, which is to lapse without a sudden change of heart among US lawmakers.

Still, last week's ethanol production was equivalent, in corn-processing terms, to 99.92m bushels, "which remains on pace to reach the current USDA estimate of 5bn bushels of corn for ethanol" for the whole of 2011-12, Mr Henry said.

The threshold for reaching this target is 96m bushels a week.

Export indicators

Also on the demand side, Nonghyup Feed, South Korea's largest feed maker, bought 30,000 tonnes of US corn through private talks at a little under $300 a tonne including freight, although a bigger test of foreign demand will come later with weekly US Department of Agriculture export sales data.

The USDA is expected to show corn sales of 400,000-600,000 tonnes for the latest week, down from 708,000 tonnes last time.

Wheat

sales are pegged at 300,000-400,000 tonnes, down from 427,000 tonnes, with

soybean

sales expected at 400,000-600,000 tonnes, down from nearly 800,000 tonnes.

Dry Pampas

Also important later will be any changes in the South American weather outlook, which has turned worryingly dry in some areas.

WxRisk.com's latest assessment for the next week is that "all of Paraguay south east Brazil and all of central eastern and northern Argentina will see only 25% of normal rainfall.

"East central into central Brazil will see 200-300% of normal rainfall but Bahia will see only 25-50% of normal rainfall."

'Heavy rain is forecast'

For now, encouraged by the weaker dollar, corn added 0.6% to $5.84 a bushel for March, the first day for the contract in the spot position.

January soybeans, which ended the last session at the psychologically important level of $11 a bushel, were 1.1% higher at $11.11 ¾ a bushel.

March wheat wasn't too far behind, up 0.9% at $5.85 ¾ a bushel, helped too by some bullish news on demand, with Syria tendering for a further 100,000 tonnes of wheat, following a December 7 purchase of 100,000 tonnes.

Syria is, though, price conscious, rejecting all offers at the previous tenders, which closed on September 26, October 24 and November 14.

Furthermore, weather is still hardly benign for Australia's harvest.

"Heavy rain is forecast in South Australia tonight and tomorrow with rainfall extending into the eastern states over the weekend," Luke Mathews at Commonwealth Bank of Australia noted.

Cotton support

Elsewhere,

cotton

gained some encouragement from a survey showing that plantings in China, the top producer, will slump 10.5% next year, crystallising concerns about the impact of lower prices on farmers' behaviour.

New York cotton for March, which closed the last session at a 16-month low, bounced 1.3% to 86.18 cents a pound.

But Kuala Lumpur

palm oil

dropped 1.2% to 3,017 ringgit a tonne, reacting to the last session's decline in Chicago's soy complex, and with data showing a drop in Malaysian exports in the first half of this month (although this is complicated by the imminence of holiday periods).

Societe Generale de Surveillance put the decline, month on month, at 19.2%, with Intertek Testing Services estimating it at 16.6%.

By Agrimoney.com

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