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Morning markets: eurozone hopes allow crops further gains

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Turnaround Tuesday, pah.

Clear skies on external markets meant good conditions for a second day for bulls in risk assets, such as agricultural commodities, rather than the reversal in market direction from Monday which Chicago lore dictates.

The "risk-on" signals entrenched amid growing hopes of a deal to sort out the eurozone, following meetings between leaders within the region, and the US.

The E440bn European financial stability facility is to be allowed to issue its own securities, so increasing its firepower, according to CNBC.

Real revives

Shares

rose in the likes of Tokyo, up 2.8%, and Seoul, up 5.0%, standing 0.9% higher in Shanghai in late deals, after the 2.5% gain in Wall Street's Dow Jones Industrial Average overnight.

As an extra booster to

dollar

-denominated commodities, the dollar's

trade weighted index faded a further 0.4%, so making them more appealing to buyers in other currencies.

Crucial for agricultural commodities, the dollar has now lost some 7% of its value against the Brazilian

real

since Thursday's two-year high, so reducing the advantage of Brazilian exporters of the likes of

soybeans

against their US rivals.

Even for crops, such as

coffee

and

sugar

, in which Brazil is the biggest game in town, the exchange rate matters given that while the crops are traded in dollars, they are grown by farmers dealing in real.

'Better than expected yields'

And, indeed, even soybeans managed to get ahead this time, looking for their first positive close in five sessions.

US Department of Agriculture data out overnight on US crop progress was a touch negative for the oilseed, with harvest lagging, at 5% complete, less than half the average proportion by now.

But harvest reports have been, relatively, upbeat. "Yield reports from producers have better than expected yet have below last year's in most areas," Benson Quinn Commodities said.

As a card in bulls' favour, the [South] Korea Feed Association unveiled a tender for corn, feed wheat and soymeal, in 55,000-tonne batches, a reminder of crop demand at these lower levels.

Chicago's November soybean lot added 0.5% to $12.66 a bushel as of 07:30 GMT (08:30 UK time).

Minneapolis squeeze

Still, it was the grains that continued to do better, although not so much Minneapolis hard red spring

wheat

this time.

Sure concerns about short-term supplies of the grain still abound, thanks to a dearth of selling by farmers too busy with corn and soybean harvests, especially at a time when low stocks for delivery against Minneapolis contracts imply further firm prices to come.

"Given the focus on the soybean and eventually the corn harvests in the northern plains, expect a smaller number of cars and trains to be offered on the Minneapolis spot market," Brian Henry at Benson Quinn said.

He added that he had "little confidence that a legitimate offer is going to develop in the Minneapolis December contract" unless commercial buyers paid up.

'Very good quality'

However, north of the border the Canadian spring wheat harvest continues to impress, with "the general quality quite good, with the typical range of protein", Mr Henry said, a sign of "very few late season problems developed due to the favourable harvest weather".

Indeed, the overall crop harvest in Canada's important Prairies region is now 84% finished, ahead of the average of 78%, the Canadian Wheat Board said.

"Most areas of Manitoba and southern Saskatchewan are now finished the 2011 harvest, while northern areas of Saskatchewan and Alberta still have significant harvest work to complete," the board said.

It added: "Quality reports for wheat, durum and barley remain very good."

Wheat vs corn and soybeans

Minneapolis wheat added just 0.1% to $8.70 ¾ a bushel for December.

But Chicago's December [soft red winter] wheat lot did better, gaining 0.9% to $6.54 a bushel, amid talk that soybean and corn profits are encouraging growers in the big soft red winter states to downplay the grain in their autumn sowing plans.

"Some minor soft red winter seeding is beginning in the eastern Corn Belt, but talk about acres being switched to first crop corn and soybeans next spring is circulating," Jerry Gidel at North America Risk Management Services said.

One additional factor to note on wheat is the potential for rain to ease dry sowing conditions in Ukraine, (although not for the US South where drought is still an issue for hard red winter wheat plantings).

"Weather forecasts confirm that it should rain in Ukraine, except in the west," consultancy Agritel said.

'Supplies are critically tight'

The rise in Chicago wheat helped

corn

gain too, the two being linked by the idea of wheat-for-corn substitution, besides strong fundamentals.

"Despite the current financial market uncertainty and the probable demand destruction that has occurred, we cannot lose sight of the fact that global corn supplies are critically tight," Luke Mathews at Commonwealth Bank of Australia said.

Slow harvest

Furthermore, the USDA crop progress data showed the corn harvest at 10% finished, behind an average of 16% by now.

"Harvest is off to a slow start as weather delayed planting and development of the crop earlier in the year," Lynette Tan at Phillip Futures said.

This is "supportive for corn prices as traders pay close attention to the pace of the harvests as inventories of corn remain lowest in 16 years".

Corn

for December added 1.6% to $6.58 ½ a bushel.

La Nina threat

In Kuala Lumpur,

palm oil

recovered a touch too, adding 0.7% to 2,925 ringgit a tonne, having closed the last session at its lowest in 11 months.

"In the near term, downside risks for crude palm oil remain owing to higher production in Indonesia and Malaysia, particularly as yields are likely to remain strong in September," Abah Ofon at Standard Chartered said.

However, longer-term, the bank was "bullish" on the vegetable oil, "largely because we expect crude palm oil yields in South East Asia to plateau in September and start to trend downwards, possibly in October, pressuring supply".

"Additionally, the looming risk of a La Nina weather pattern developing in the southern hemisphere late this year could adversely affect palm oil harvests", besides production of rival oilseed soybeans.

By Agrimoney.com

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