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Morning markets: palm springs, as crops make positive start

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The prospect of a long weekend ahead for the US, where markets will be closed on Monday for President's Day, should in theory have injected a bit of caution into markets.

Investors are typically viewed as withdrawing a touch, when having to go three days without the chance to trade.

But that wasn't the theme in early deals, at least, as talk that Greece had done enough to get its E130bn bailout signed off, on Monday, sparked a wave of optimism.

Shares

rose in Asian, by 1.3% in Seoul and 1.6% in Tokyo, while the

dollar

traded flat as of 08:50 GMT, and Brent

crude

rose a touch, securing its place above $120 a barrel.

Palm springs

And agricultural commodities made headway too, notably

palm oil

, which soared 1.8% to 3,246 ringgit a tonne in Kuala Lumpur for the benchmark May contract, having hit 3,255 ringgit a tonne earlier, the highest since November.

The rise was attributed in part to continued dry weather in some South American

soybean

-growing areas.

"Prospects of lower supply in soybean due to dry weather in Brazil provided some support for palm oil that competes with

soyoil

for use in biofuels and food," Ker Chung Yang at Phillip Futures in Singapore said.

The Argentine government overnight came in with a domestic soybean production estimate of 43.5m-45.0m tonnes, below the 48.0m tonnes that the US Department of Agriculture forecast last week.

Argentina is the top exporter of soyoil too.

Rapeseed write-offs

But also the weaker prospects for European and the former Soviet Union

rapeseed

crops were seen as having an impact too, with rapeseed oil another palm oil competitor.

OK, concerns about the region's wheat crops may have been overplayed, if Strategie Grains' assessment on Thursday was correct.

But in southern Ukraine, for instance, "it seems clear that the cold snap caused winterkill on rapeseed," Agritel's Kiev office said on Friday, with many other observers concerned about eastern European crops too.

'Soybeans buttressed'

Which was all supportive too for soyoil too, which added 0.7% to 53.43 cents a pound in Chicago for March delivery, besides soybeans themselves, which rebounded 0.5% to $12.64 ½ a bushel for March.

Standard Chartered analyst Abah Ofon restated a recommendation in December to go long July soybeans, "as the trade has been buttressed by significant weather-induced reductions in the Latin America soy crop".

"Investors should maintain this position to benefit from higher gains over the next quarter."

'Export business picking up'

Mr Ofton wasn't so positive about the grains.

C

orn

and

wheat

futures will "struggle for the remainder of the first quarter" as attention shifts to potentially huge 2012-13 crops, before the grains recover in the second quarter "reflecting the seasonal bias, tight old crop stocks, and the continuing battle for acreage".

But they weren't showing the pressure in early deals, backed by better ideas on demand.

For wheat, there have been a string of orders and tenders this month, from major importers such as Algeria, Iraq and Saudi Arabia, and Egypt, which purchased more US soft red winter wheat (the type traded in Chicago) on Thursday.

"We are starting to hear export business picking up around the world," Mike Mawdsley at Iowa-based Market 1 said.

Price rationing talk

For corn, weekly US export sales data released on Thursday, of more than 1m tonnes, trounced forecasts.

"Ideas throughout the trade that the current sales pace is pointing towards a 100m-bushels-plus higher trend than the current USDA 1.7bn-bushel forecast has some questioning as to whether we can sustain that type of pace and if price rationing isn't warranted," Jon Michalscheck at Benson Quinn Commodities said.

The sales also included 415,000 tonnes to Mexico, a major importer, "which reminded the market that Mexico's winter corn crop has gotten off to a dry start in the north", Paul Deane at Australia & New Zealand Bank said.

"The ongoing drought in the region has depleted irrigation reserves to 40% of capacity, while rainfall was low during planting."

Ethanol factor

Furthermore, fears for a slowdown in corn ethanol production have eased, after weekly data showed a surprise rise in US output, of 5,000 barrels a day to 928,000 barrels a day.

Higher crude oil prices have also eased concerns for negative margins.

"The hard core bulls in the market are convinced that the ethanol grind will need to slow down or the combination of the current [export] sales and ethanol grind could increase demand in excess of 200m bushels," Mr Michalscheck said.

This would bring the estimate for US corn stocks at the close of 2011-12 below 600m bushels.

"Granted not everyone is on board the above scenarios, but at least for the moment it seems to be helping to feed the bull," he said.

'

Concerns about low soil moisture'

And talk of dry weather ahead of planting, both in the northern US and Canada (an issue for wheat too), and China, is growing in volume.

"While still not due to be planted for a few months, the corn growing area in China's north east is notably dry," ANZ said.

"A drier-than-normal winter combined with a dry autumn last year has left soil moisture levels low. This will make timely rains around planting more important than normal for the region."

At Commonwealth Bank of Australia Luke Mathews flagged "concerns about low soil moisture levels in the northern US Plains", which had supported Minneapolis spring wheat prices in the last session.

In fact, the March Minneapolis lot added a further 0.5% to $8.21 ¾ a bushel this time, a little behind Chicago's March lot, which gained 0.5% to $6.32 a bushel.

Chicago corn for March was 0.3% higher at $6.38 ¼ a bushel.

By Agrimoney.com

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