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Morning markets: funds' return keeps crop rally ticking over

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Agricultural commodities could have been forgiven a soft start to Friday, given something of a malaise abroad in financial markets.

Tokyo's Nikkei share index closed down 0.7%, with Hong Kong's Hang Seng losing 0.5% and Australian stocks ending 0.4% lower as weak US data from earlier in the week kept investors on the defensive, and with a much-watched monthly report on American jobs to come later.



was marginally firmer too, while oil was a touch lower, with New York crude hanging on to the $100-a-barrel level by its fingertips.

But in fact grains continued where they left off the last session, on the front foot, helped by something of an idea that losses in some other markets were to agricultural commodities' benefit.

Back in vogue

Kim Rugel at Benson Quinn Commodities said that "new money was seen pouring back into the ag complex" in the last session as funds reverse the switch to energy investments made earlier in the year when North Africa was in crisis.

"Returns appear limited in the energies on slowing US economic recovering and slack consumer demand, while the ag sector could offer higher returns on tight crop situations and new crop production concerns."

Mike Mawdsley at Market 1 braced investors for prices swinging "violently back and forth" as funds take a greater interest.

Weather threats

And the fears for this year's harvests remained alive on Friday, with weather forecasts overnight doing little to improve the situation for northern US and, in particular, Canadian farmers attempting to sow spring wheat.

Canada is into the weekend to suffer "significant" rain, said, noting another system due midweek, which will hit the Dakotas too, and a further cold front around June 9-10 that "sets up the potential for significant showers and thunderstorms across large areas of the upper Plains and the Great Lakes".

The weather service added that "south of these weather systems, which means most of the Plains and the Midwest as well as the deep South, will continue to run warm and generally dry over next several days", which is not a universal benefit either given that many of these areas, such as Texas, are in drought.


, of which Texas is America's top growing state, added a further 2.1% to 167.60 cents a pound for July delivery as of 07:40 GMT (08:40 UK time), although the December lot was 0.03 cents lower at 139.20 cents a pound.

'On the defensive'

Concerns over the former Soviet Union's return in earnest to exports appeared to have been overcome, for now, too, with Australia & New Zealand Bank highlighting the "bullish developments" of Ukraine's cut on Thursday to its grain export forecast for 2011-12, and talk in Russia of levies on shipments.

There are weather worries in the region too, with a notable lack of rain of late, and forecasts not offering relief.

"The recent forecasts for this region are point to warmer, drier conditions, which could limit the potential 53m tonnes of [wheat] production that is currently expected [in Russia]," Benson Quinn said.

"While I believe they have wheat available, exporters may remain on the defensive until new crop wheat is closer to harvest."

Minneapolis leads

So Chicago wheat added 0.5% to $7.73 ½ a bushel for July delivery, with the September lot contract 0.6% at $8.23 ½ a bushel.

Minneapolis spring wheat, the high-protein type around which US spring sowing concerns are centred, soared 1.3% to $10.33 a bushel for July, with the new crop September lot showing a more measured gain of 0.7% to $9.94 a bushel.


edged 0.2% higher to $7.67 ¾ a bushel with further ahead contract having a more mixed job of building on contract highs set in the last session.

The September contract gained 0.2% to $7.42 ¾ a bushel, while December eased 0.25 cents to $6.94 ¾ a bushel.

China concession?


had extra boosts. The first was from talk that China, the top soybean importer and consumer, may lift price controls on vegetable oils, reviving margins for oilseed crushers.

The second was US data on Thursday showing that demand for soyoil from biofuels groups, following a resumption of a tax perk at the start of the year, with the amount of the vegetable oil going into biodiesel hitting 216.8m pounds in April, up 23% from March.

And thirdly, technical factors were in its favour, with the oilseed in the last session closing at a two month high, above $14 a bushel, and breaking – upwards - out of a trading range.

Slow sowings of US soybeans, and Canadian canola, besides dry weather threats to European rapeseed, helped too.

Chicago's July soybean lot added 0.4% to $14.12 a bushel.

Elsewhere in the oilseeds complex,

palm oil

did even better, gaining 1.4% to 3,450 ringgit a tonne in Kuala Lumpur, helped by talk of the lifting of Chinese price curbs, besides hopes for a build-up in demand ahead of the Ramadan festivities.

Data later

Later on, direction may depend on reaction to the US jobs data, which looks like a potentially multi-market moving event.

However, for crops, the US Department of Agriculture will also release weekly export sales data expected to show soybeans at least matching last time's 150,000 tonnes.

Corn export sales are pegged at 500,000-1.0m tonnes, roughly in line with last week, while wheat is seen doing well to match its 432,000 tonnes last time.


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