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Morning markets: grain futures prepare for 'breakout'

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Technical indicators often increase in importance in times of prominence in times of uncertainty, as now, when investors seek something solid amid the maelstrom, or when news on fundamentals is quieter.

In agricultural commodities, they are indicating key moments may be about to happen in Chicago corn and wheat, which would have implications for a stack of other contracts and markets too.

Chicago's December

corn

contract has spent nearly a month treading in essence within the borders of $6.30 a bushel and $6.60 a bushel.

"Corn is still stuck in a range," said Mike Mawdsley at broker Market 1, noting that the 20-day moving average, currently at $6.44 ½ a bushel, had been providing a floor against downward movement.

For December

wheat

, the range is $6.10-6.50 a bushel or so.

"Wheat continues to respect [technical] support and resistance levels," Mr Mawdsley said.

'Should be a breakout'

But the wheat chart suggests that could be about to change soon, as some key chart lines, including the uptrend line of the last month or so, converge.

"Futures should tell us soon which way wheat wants to go," Mr Mawdsley said.

"Like corn, there should be a breakout one way or the other soon."

But not in early deals on Monday, anyway, when both grains stood lower, but remained well within their recent ranges.

More eurozone jitters

Downward movement was the default position for risk assets, given the continuing uncertainty over the eurozone debt situation.

Details remain sketchy over the new unity government being formed in Greece, the centre of the sovereign debt concerns which are also spreading to Italy, which would mean a far bigger rescue if its situation worsened.

Asian

shares

closed lower, if by less than 0.5% in markets such as Seoul, Sydney and Tokyo.

The

dollar

firmed a touch, up 0.3% against a basket of currencies, so making things more tricky for dollar-denominated assets by making them more expensive to buyers in other currencies.

Copper

posted losses, and Brent

crude

eased 0.3% as of 08:40 GMT.

'Significant rain on the Plains'

And what fundamental news there was on the grains was bearish too, with South American sowings still progressing apace, promising news for supplies of corn and

soybeans

ahead.

And, in wheat while the southern Plains did not receive much rain over the weekend, as some forecasters had said, moisture is still on its way to drought-struck hard red winter wheat seedlings.

"It looks like there is going be significant rain over portions of the central and lower Plains and into the Midwest in the middle of this week," WxRisk.com said.

One model was "forecasting a significant area of 0.50-2.50 inches rains with 60-70% coverage over eastern Texas central and eastern Oklahoma, eastern half of Kansas, far southeast as well as all of Arakansas, Missouri and Illinois, into far southeast Wisconsin and western Michigan".

That said, "on the other hand we can clearly see that the western portions of Texas, Oklahoma, Kansas and Nebraska are not going to see significant rain with amounts and these areas generally under 0.3 inches with coverage of only 40%".

And one point for bull is that the outlook for Ukraine, where drought is also a problem for winter grains, looks dry.

Wasde on the horizon

Still, as for a breakout in grains from their trading range, one good reason for staying calm for now is the prospect on Wednesday of the US Department of Agriculture's next key Wasde report on world crop supply and demand.

That is expected to show a small downgrade to the US corn production forecast, by 52m bushels to 12.381bn bushels, as the impact of a hot summer on yields continues to tell.

With less production, and lower prices not rationing demand so fast, the end-2011-12 stocks estimate is seen suffering a downgrade too, of 71m bushels to 795m bushels.

Still, with USDA reports of late noted for surprises, investors may be reluctant to bet on breaking corn and wheat out of trading ranges until they see the numbers in front of them.

December corn fell 0.7% to $6.51 ½ a bushel, with December wheat down 0.7% to $6.32 ¼ a bushel.

January soybeans fell 0.6% to $12.13 ¼ a bushel.

Thai fears deepen

Elsewhere, New York

cotton

eased 0.1% to 98.65 cents a pound for December delivery, trading within its range, of 98-104 cents a pound, too

But back in Chicago, rough

rice

bucked the downward trend, adding 0.2% to $16.16 a hundredweight for January delivery, as flooding in Thailand set fresh headlines, with Bangkok seeing further damage.

Thailand is the top exporter of rice, as it is of

rubber

.

However, rubber futures took the opposite course, easing 0.6% to 283.00 yen a kilogramme in Tokyo, amid fears that the flooding is affecting the nation's important car production plants, so limiting demand for the tyre ingredient.

By Agrimoney.com

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