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Morning markets: frost fear keep soybean prices ahead - just

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How severe is the frost chilling much of North America?

The event is certainly bleeping large on the markets radar.

"The freezing temperatures are predicted for North Dakota, northern parts of Minnesota and Wisconsin," Mike Mawdsley at Market 1 said.

"It will probably be a wait and see where it freezes, how cold it gets, and how long does it stay below 32 degrees Fahrenheit," equivalent to zero Celsius.

"Could be a wild night session [US time] with folks up watching their weather maps."

'Potential damage'

Indeed, while harm to wheat is expected to be "minimal", with so much of the harvest done, "potential damage to soybeans and some of the corn crop can be expected", according to Brian Henry at Benson Quinn Commodities.

"Temperatures in a few areas could get down to the high teens," he added, equivalent to about minus 7-8 Celsius.

However, to judge by futures markets, the temperatures have not been unduly cold.

The biggest frostiness appeared to be in investor sentiment towards agricultural commodities which, with few exceptions, stood in negative territory as of 07:00 GMT (08:00 UK time).

'Possible flooding'

One exception was

rubber

, which added 0.4% in Tokyo to reach 362.00 yen a kilogramme for the benchmark February lot.

"Heavy rain in Thailand is raising concerns over possible flooding in the world's largest natural rubber producer and exporter, particularly as some growing regions in the south begin to experience rising water levels," Ker Chung Yang at Phillip Futures said.

In Chicago, the freeze threat kept enough menace to keep

soybeans

ahead by 0.5 cents at 13.83 ¼ a bushel for the November contract, in its first day as the spot position after the expiry of September lots on Wednesday.

"Some soybean fields will be green," Charles Hurburgh at Iowa State University noted.

Data later

And, as seems to be a bit of a theme this week, when soybeans move one way,

corn

goes the other. (Indeed, some traders have mentioned winding and unwinding of corn-soybeans spreads.)

Chicago's December corn lot dropped 0.6% to $7.19 ¾ a bushel, despite data on US farm insurance claims expected later, which will reveal more about how many acres were lost to a poor spring sowing period and river flooding.

For now, there were depressants on both sides of the balance sheet to be worried about.

Chinese upgrade

For supplies, there is growing talk of competition from South American supplies which, while normally wearing thin by now, have this year remained unusually strong.

Argentina (which is also predicting a strong harvest ahead) is expected to clear 7m-8m tonnes of exports for 2011-12, on top of 12.6m tonnes already authorised, and potentially more even than the upgraded estimate of 19.5m tonnes released by the US Department of Agriculture on Monday.

And there was more on China's harvest, with Zhang Xiaoqiang, deputy head of the National Development and Reform Commission, pegging the total grains crop at a record 560m tonnes.

There have already been reports of a record corn harvest, above 180m tonnes, versus the USDA estimate of 178m tonnes. (That said, there have been reports of early frost in China too.)

Demand destruction

As for consumption, "the market has become increasingly focused on demand destruction in recent weeks", Luke Mathews at Commonwealth Bank of Australia said.

"Wheat feeding expected to displace an increasing proportion of corn use. We would argue that this is entirely necessary given the extraordinarily tight supplies of US corn."

Following Wednesday's soft US ethanol production data, traders have lower hopes for weekly corn export figures due later too, with the total expected to fall to 400,000-700,000 tonnes, from 871,000 tonnes last time.

And with corn lower, there was little hope for

wheat

, whose main support currently is the fact that it is an alternative to corn (wheat is in ample world supply) and is, in Chicago, at an atypical discount to corn.

Chicago's December contract shed 0.5% to $7.01 a bushel.

Firm fibre

In New York,

cotton

was among the winners, adding 0.1% to 113.82 cents a pound, amid continued worries for the impact of flooding on Pakistan, the fourth-ranked producer.

Mr Mathews noted "Pakistan crop concerns and an improvement in investor appetite, linked to a better mood in Europe" helping cotton prices higher.

But for how long? "We are concerned that the weak US economy, highlighted once again by poor retail sales, will push cotton prices lower."

In fact, external markets were broadly neutral, with the Nikkei

share

index adding 1.8%, and Seoul stocks gaining 1.4%, but New York

crude

easing 0.4%.

The

dollar

was less than 0.1% stronger against a basket of currencies.

By Agrimoney.com

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