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Morning markets: storm fears spur cotton ahead of US report

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Cotton

, which outpaced grains in the last session, maintained its performance in early deals on Thursday, lifted by concerns of further damage to the US crop.

Sure, the improved general market mood added a bit of impetus to cotton, which, as a non-food commodity linked more to discretionary spending, tends to move more in line with broader economic sentiment.

Tokyo

shares

closed up 0.3% as the round of stockmarket increases, helped by growing expectations of further US measures to stimulate its economy, and by German courts rejecting lawsuits aimed at barring the country from helping bail out stricken eurozone neighbours.

But there were cotton specifics too, after the US Department of Agriculture on Tuesday highlighted damage to the American crop from hurricane Irene, and with further storms on their way.

'Huge acreage adjustments'

"US crop conditions for cotton deteriorated again this week," Paul Deane at Australia & New Zealand Bank said.

"Tropical Storm Lee is now causing bad weather across the Mississippi Delta and the outlook for US cotton yields are again back on the market's radar."

Especially since the USDA will on Monday publish its latest benchmark Wasde report on world crop supply and demand which offers an opportunity to revisit estimates for the domestic crop.

The last Wasde came in with a surprisingly high yield of 822 pounds per acre – higher than that either in 2009 and 2010 despite drought hurting southern US crops, including in top producing state Texas, let alone the storm damage.

It also surprised by raising the estimate for harvested acres too.

Mike Stevens, the Louisiana-based cotton analyst, highlighted the "huge acreage adjustments that must be dealt with in the upcoming USDA report". Adjustments downwards, that is.

And with concerns over fresh floods in Pakistan spurring bulls too, December cotton added a further 2.8% to its close in the last session up the maximum allowed by the New York exchange, taking it to 113.43 cents a pound, as of 07:30 GMT (08:30 UK time).

Altitude lethargy

And that was a considerably bigger rise than the Chicago grains could manage.

Indeed, they have started taking a different, more rabbit-in-the-headlights, approach to cotton ahead of Monday's Wasde.

"Looks like we have hit a spot where traders are going to wait to see just what the USDA has to say in the September crop report," Mike Mawdsley at Market 1 said.

With prices at historically elevated levels, "grain traders are being cautious up here".

Consolidation or exhaustion?

OK, there is scope for volatility, potentially on technical factors, with Jon Michalscheck flagging

corn

futures' inability, for the 2011-12 lots, to find buying above their 10-day moving averages.

Both bullish and bearish investors "will be watching closely as to whether the market is just consolidating after running up and making new contract highs last week, or we have reached an exhaustion point", Mr Michalscheck said.

The latter would mean that the market might "roll over either ahead of next Monday's USDA report and/or shortly after it has been released".

Lynette Tan at Phillip Futures also noted that corn futures face "pressure from the fast-approaching harvest in the Midwest, which has begun to temper prices in the cash markets".

Chinese imports

However, in early deals, movement was limited and upward, with corn adding 0.4% to $7.51 a bushel for December delivery.

December

wheat

was up 0.2% at $7.53 a bushel, with

soybeans

gaining 0.2% to $14.23 ¾ a bushel for November delivery.

Adding some grist to soybeans' mill was a forecast by Chinatex Grains and Oils Import and Export Co that China's imports of the oilseed could hit 58m tonnes in 2011-12, and potentially top 60m tonnes should pig breeders ramp up expansion plans.

The USDA currently has soybean imports by the world's biggest buyer of the oilseed at 56.5m tonnes.

'Ukraine has to export'

Less promising for wheat was a forecast by Agritel that Ukraine may join Russia and Kazakhstan in ramping up its poorly-performing grain shipments – export levies or not.

"Ukrainian lack of stockpiling capacities is a concern for farmers," the Paris-based consultancy said.

"The country can stock 55m tonnes of grains, no more," below the 60m-62m tonnes forecast from cereal and oilseed harvests.

"Ukraine has to export at least 7m tonne of grains by the end of corn, soy and sunflower harvests."

By Agrimoney.com

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