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Morning markets: stable US crop condition stalls crop rally

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Trust the second day of the week to bring a reversal in sentiment.

The Turnaround Tuesday idea beloved of Chicago traders, who teach that a strong trend on a Monday is reversed the next day, kicked in to food commodity markets, and a little bit into others too.

While Tokyo


closed higher, their 0.3% gains were not a patch on the 1.9% gains on Wall Street overnight. Shanghai stocks were 0.7% lower in late deals.

And in another sign that risk assets were not so much in favour, the dollar, an inverse indicator of investor jitters, recovered ground, adding 0.3% against a basket of currencies, and so making dollar-denominated export assets less


to foreign buyers.

New York


fell 1.2%, back below $87 a barrel as of 07:40 GMT (08:40 UK time), and


eased too, shedding 1.2% in Shanghai.

There were reasons to be careful, what with a slew of US data due later on topics including housing starts and industrial output, offering a further insight into the health of the world's top economy.

As for the debt worries on the other side of the Atlantic, Nicolas Sarkozy, the French president, and Angela Merkel, German chancellor, are to meet to discuss the workings of the eurozone.

Corn concerns

And crops had their own causes for caution too, one being that the weekly US crop condition reports produced by the US Department of Agriculture fell short of some expectations.

There is plenty of anecdotal evidence of poor


crops, for instance.

Mike Mawdsley at Market 1 noted "more and more talk about corn concerns across the Corn Belt.

"Talk of [lower yields] than last year, no matter where one is located, is being suggested. If true, spot corn near $8.00 seems likely." Last year was, after all, hardly a banner year for US corn growers.

However, the USDA said that the corn crop remained 60% in "good" or "excellent" health, the same as last week (if weighted a touch more towards "good") and defying forecasts of a drop of up to two percentage points.

'Dryness an issue'

The detail of the report did show some big declines in top producing states, such as Iowa, where the good and excellent rating fell six points, to 67%.

Paul Deane at Australia & New Zealand Bank said: "Cooler weather over the week was welcome but most of Iowa received less than an inch of rain, with some areas in the southeast receiving none. Dryness in the state remains an issue."

At Benson Quinn Commodities, Jon Michalscheck said: "The report did show that four of the top five corn producing states did decline last week, with the exception of Minnesota, which received moisture everywhere but the lower one-third which is where the states corn yield is determined."

The report "should stress the importance of receiving some much-needed precipitation for the main core of the Con Belt during the month of August", he added.

Chicago corn dipped, but not too much, shedding 0.5% to $7.16 ¾ a bushel for December delivery.

Holiday disruption



, overall condition was unchanged too, at 61%, again indicating a more healthy crop than many analysts had expected given recent rains missed many needy areas.

The November lot fell 0.7% to $13.42 ½ a bushel, fostering reversals elsewhere in the oilseed complex too.

Kuala Lumpur

palm oil

dropped 1.0% to 3,0005 ringgit a tonne for November delivery, despite concerns of a waning in the upward production trend.

"Malaysia planters expect palm oil output in August in key producing states Sabah, Johor and Perak to fall as workers go on holidays during the Islamic fasting month of Ramadan, at a time when demand is rising," Ker Chung Yang at Phillip Futures said.

Better condition



did worse after the overnight USDA report showed the condition of the US crop improving, by one point, to [an albeit feeble] 31% good or excellent.

New York's December cotton lot drifted 1.4% to 102.58 cents a pound, despite the prospect of further poor weather for Texas, the top US producing state in the midst of drought.

ANZ's Paul Deane noted that the "15-day temperature outlook showing above-average temperatures with below-average rainfall" for the state, which produces half US cotton.

'Cause for concern'

It is a notable producer too of winter


, a crop for which the dryness concerns in the US South are already raising fears for the 2012 crop, which should be planted next month.

Dave Lehl at Benson Quinn, noting forecasts for "hot and dry condition through much of Texas and Oklahoma", said: "With planting of the 2011-2012 US winter wheat crop just a few weeks away, this situation looks to remain a cause for concern especially for the southern half of the hard red region."

However, bears had points on their side too, besides the broader market malaise.

The condition of the US spring wheat crop stabilised, at 66% good or excellent, and supply pressure is on from the start of the harvest, albeit a delayed one in line with the late sowing season.

'Slightly behind average'

And just 13% of the US crop was harvested as of Sunday, one-third the average by now, the USDA report said, with the late pattern being repeated north of the border.

"Overall, the harvest is slightly behind average due to late planting this year," the Canadian Wheat Board said, although it is as yet early days, with 2% of Prairies crops in the silo, compared with 3% normally by now.

Wheat, which rose in the five previous sessions, retained its status as the best performer in Chicago.

But only by falling less. The September contract dropped 0.3% to $7.10 ¾ a bushel.

Kansas, hard red winter wheat, for September was 0.3% lower at $8.08 ¼ a bushel, with Minneapolis spring wheat down 0.1% at $8.72 a bushel.


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