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Morning markets: eurozone hopes prop up ag commodity prices

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The upside of Standard & Poor's threat on Monday to issue credit rating downgrades to a clutch of eurozone countries is that it will concentrate those nations' minds ahead of a key summit later this week.

At least, that is the interpretation investors are making, injecting a mood of hope into financial markets on Wednesday.

There is some basis to this optimism too, with European leaders reported to be considering allowing an extra bail-out package, of E500bn, set to come into force midway through 2012 to run in addition to, rather than instead of, an existing E440bn fund.

The improved sentiment was evident in symptoms of "risk-on" trading, with

shares

rising, by 1.7% in Tokyo, and the

dollar

easing, by 0.2% as of 08:10 GMT.

Brent

crude

added 0.4% to reclaim $111 a barrel.

'Relief rally in sight?'

The mood spread into agricultural commodities too enabling, most of, them to build on what had seemed unlikely gains in the last session, coming in the face of upgrades to Australian and Canadian crops.

"There were lots of news items on Tuesday, and all were bearish," Mike Mawdsley at Market 1 said.

"Interesting, that

corn

,

soybeans

,

soymeal

,

wheat

,

soyoil

all closed higher. If bearish news can't push us lower, just maybe a relief rally is in sight."

However, agricultural commodities also have the next US Department of Agriculture Wasde world crop report, on Friday, firmly in sight, which adds an extra layer of complication.

'Additional bearish data'

The December Wasde is viewed as one of the less important of the monthly series, as it has a history of not altering US production data, leaving that to November and January reports.

Still, it was capturing investors' attention.

"The focus for the rest of the week will be on Friday's Wasde report," Luke Mathews at Commonwealth Bank of Australia said, noting expectations of a rise in the forecast for world wheat stocks.

Lynette Tan at Phillip Futures in Singapore said: "The trade is anticipating additional bearish data that will forecast increased supplies of most grains."

At Benson Quinn Commodities, Brian Henry flagged forecasts that the Wasde will "show incremental gains in world production, but any fireworks will likely be associated with corn numbers".

But generally, he advised investors to "expect range-bound trade throughout the holiday season".

Chart pointers

Which would indeed be better news for bulls than bears, the way markets have been going since early September.

And, indeed, March corn added 0.3% to $5.98 a bushel, a small rise but an important one, from a technical perspective, in retaking the contract's nine- and 10-day moving average lines. .

There had been some disappointment in the last session that corn's gains had not seen it then close above these levels.

Soybeans for January gained 0.3% to $11.33 a bushel.

The weakest of Chicago's big four was wheat, which for March shed 0.4% to $6.10 ½ a bushel.

But then, it was also the butt of Tuesday's fundamental setbacks, through crop upgrades, an improving weather outlook for the US southern Plains and another no-show by US grain at an Egyptian tender.

Too wet

Elsewhere, moves were largely positive too, with

palm oil

rising 1.0% to 3,115 ringgit a tonne in Kuala Lumpur, helped by the firmer oil price (much of the vegetable oil is used to make biodiesel) and heavy rains in the major production area of Sabah.

Excessive rainfall damages oil quality, besides disrupting palm oil logistics.

Chinese crop futures were also mostly showing gains, a notable exception being

sugar

, which for May delivery lost 1.1% to 6,346 yuan a tonne on the Zhengzhou exchange.

'A drag on prices'

Cotton

was a touch higher on the Zhengzhou, up 0.1% at 20,610 yuan a tonne, but lower in New York, down 0.2% at 93.61 cents a pound for March delivery, and so missing out on its own chance for a crack at a technical landmark.

"Further gains would target the 50-day moving average at 96.84 cents a pound," Mr Mathews said, flagging the potential for the Wasde to alter the fibre's fundamentals too.

"The USDA is expected to cut its US crop estimate, raise the export forecast and lower ending stocks projection in its Wasde report. But the economic outlook remains a drag on prices."

By Agrimoney.com

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