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Morning markets: soaring soybeans brush away Spain downgrade

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You can't keep a good thing down.

Soybeans

, the laggard in the last session to grains, made that look something of an aberration by returning to the front of the grid in Chicago.

In truth, the surprise was not so much that

wheat

eased. That was in line with the broader market mood, including among soft commodities, after Standard & Poor's downgraded Spain's credit rating by two notches.

It was just like late 2011 all over again, and many risk assets did what they did late last year, falling.

Paris

shares

got off to a particularly poor start, dropping more than 1%. But commodities struggled too, facing too the headwind of a stronger

dollar

, up 4%, which reduced the affordability of dollar-denominated assets to buyers in other currencies

'Plenty of interest'

Brent

crude

dropped 0.4%, to a little over $119 a barrel, while London

copper

edged down 0.1%.

But soybeans added 0.6% to $14.90 ¾ a bushel for the May contract, as of 09:10 UK time (03:10 Chicago time), within spitting distance of its highest price since 2008, set earlier this week.

The July contract added the same to $14.89 ¼ a bushel for July delivery, as a revival which kicked off late in the last session continued into this one.

Indeed, the downgrade by the Buenos Aires grain exchange, by 1m tonnes to 43m tonnes, to its estimate for the Argentine soybean crop kept up the idea of a still-worsening crop, being tested by frost now besides the drought which struck earlier in the season.

And US weekly soybean export data were, at 1.4m tonnes old crop and new combined, above market expectations, provoking ideas that US shipments for 2011-12 will beat official expectations.

The cash market indicates that demand remains, despite the latest run-up in prices to their highest levels since 2008.

"Basis levels continue to indicate plenty of interest for soybeans," Brian Henry at Benson Quinn Commodities said.

'Bullish sign'

And the pit has firm technicals on top, besides decent fundamentals which, after all, old crop corn retains too.

"The periodic weakness experienced in the soybean market this week has done very little chart damage and upward momentum appears to be intact," Mr Henry said.

"The trade continues to leverage very sound soybean fundamentals against a corn market that has a difficult time gaining traction despite tight old crop supplies and supportive news as it pertains to old crop supplies."

At Market 1, Mike Mawdsley said that soybeans' "fightback" in the last session was a "bullish sign".

'Emerging crops vulnerable'

Corn, meanwhile, recovered from early losses amid increasing talk of the spring sowing season turning out just very good, instead of phenomenal.

At Texas A&M University, Mark Welch clocked a downside from above-average temperatures forecast for early May.

"While most of the Corn Belt is expected to receive above normal precipitation over this period, emerging crops in northwest Iowa, southern Minnesota, and eastern Nebraska, already in severe to moderate drought, are vulnerable," he said.

Chicago's new crop December corn contract added 0.1% to $5.35 ½ a bushel.

Clock trader?

But old crop managed to keep a foot in positive territory. The May contract held its head above water, adding 0.5% to $6.27 ¼ a bushel, if only because of a rush by speculators to close positions before expiry process begins next week, and their liability risks turning from financial to physical.

Benson Quinn, referring to May corn's 2% leap in the last session, said: "We are not sure if the speculator is truly a clock trader or not but there didn't appear to be another reason they would pick today to want to exit their short May position at any what seemed to be any cost."

Still, there are plenty around who believe old crop corn is undervalued, given tight supplies and indicators such as a firm cash market, helping the July contract add 0.5% to $6.10 ¼ a bushel.

The lots were also helped by a climb in the benchmark September corn contract on the Dalian exchange, by 0.4% to 2,430 yuan a tonne, a reminder of tightness remaining in a much-scrutinised importer of the grain.

'Temperature extremes'

As for

wheat

, that continued its role of underperforming corn just a little, but by enough to lose its premium over its fellow grain.

Chicago's May wheat contract dropped 0.2% to $6.25 ½ a bushel, although the July lot retained some premium over July corn, even by standing unchanged at $6.35 ½ a bushel.

There have been an increasing number of weather scares, including the US, where frost has rattled nerves in the north, and volatile temperatures largely further south.

Lynette Tan at Phillip Futures clocked fears that "temperature extremes in different parts of the US posed a threat to domestic wheat output", and in Europe over "a turn to warm and dry weather in some wheat areas".

Dryness is emerging in the former Soviet Union too, a raw nerve given the extreme drought the region suffered two years ago.

'Downward pattern'

Still, as the International Grains Council reminded on Thursday, even when slicing 5m tonnes from its forecast for this year's world wheat harvest, world inventories remain ample.

Texas A&M University's Mark Welch said that the wheat price trend "continues to follow the downward pattern seen in other years in which stocks to use ratios are either on the rise or are at relatively high levels.

"We could see support from corn or soybeans if weather concerns emerge in those markets this summer.

"Otherwise, I see more downward pressure on wheat prices than underlying support."

Lost momentum

The weakness spurred by the broader negative market mood, was evident in soft commodities, with New York

cotton

falling 0.3% to 91.83 cents a pound for July delivery, losing impetus from Thursday's US weekly export sales data.

These showed bumper sales of 200,000 running bales, old crop and new, including a large chunk to the much-watched buyer of China.

New York

sugar

, which fared ill in the last session, extended losses in this one, shedding 0.3% to 21.18 cents a pound for July delivery.

By Agrimoney.com

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