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Morning markets: talk on fundamentals helps crops stabilise

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Agricultural commodities found some gaps in the clouds which have hung over raw materials markets, as fundamental considerations came back more into play.

The sell-off continued for many commodities, such as

copper

, which fell to its lowest since mid-March in Shanghai, while

oil

dropped below $109 in New York, and

silver

fell again, to a one-month low, in a correction accelerated by a lift to margin requirements – the money that investors must put on the table to dabble in futures.

"Holy cow. Silver fell off the cliff lately," was how Mike Mawdsley at Market 1 put it.

Cotton frays

And some agricultural commodities leached further support too, as investors took a gloomy view of the impact of tighter global monetary policy, following the super-relaxed stance imposed during the world recession.

The fear is that the end of ultra-easy money will slow demand for raw materials both from trade and fund buyers.

Cotton

- which as a non-food farm commodity is less of a necessity for consumers and more susceptible to changes in the economic climate, fell again, shedding 2.9% to 147.06 cents a pound in New York for July as of 07:20 GMT (08:20 UK time), if managing – just – to stay above last week's 2011 low.

The fall followed a dismal performance by cotton futures on the Zhengzhou exchange in China, the top consumer and importer of the fibre, which is showing further signs of demand destruction following the record prices hit earlier in the year, with mills reported to be shutting for a week for the May Day holidays.

Zhengzhou cotton for September plunged 5.9% to 24,640 yuan a tonne.

'Still be poor'

But the big Chicago crops put in the more solid performance which believers in the "oats knows" thesis would have forecast from last night, when the grain, seen as something of a front-runner for peers, managed a positive close.

Sure, for

wheat

, while the keynote tour of Kansas crops came in with some poor rather than dismal yield figures for the worst drought-affected part of the state – pegging them at a seven-year low of 33.4 bushels per acre compared with 39.9 bushels per acre a year ago – "more rains will be needed before harvest to realize some of the potential", Dave Lehl at Benson Quinn Commodities said.

"Although yields may beat expectations, they'll still be poor," Luke Mathews at Commonwealth Bank of Australia said

'Potential yields decreasing'

And then there are the wet conditions slowing Canadian and US spring sowings, and the dryness in China and Europe, to factor in too.

"Dry conditions are still observed in France, Germany, Poland and on the north of Europe in general, with potential yields decreasing slightly each day," Paris-based Agritel said.

Ker Chung Yang at Phillip Futures said: "Weather remains an issue and bears continued watching in several of the key US and international growing areas,"

[Soft red winter] wheat for July recovered 0.7% to $7.77 a bushel in Chicago, with Kansas hard red winter wheat for July adding 0.4% to $8.81 a bushel.

Key report

Corn

built on its gains of the last session, up 1.0% to $7.37 a bushel for July delivery, with the new crop December lot up 0.9% at $6.71 a bushel, as the theme of the tightness of its supplies regained prominence.

Such thoughts are being encouraged by the release next week of the US Department of Agriculture's first estimates for major grain and oilseed crops worldwide in its latest Wasde report on world supply and demand in agricultural commodities.

Corn itself has also been helped by reports of China ordering the delivery of some corn, apparently, bought from the US earlier in the year, meaning the trade will not go the way of some recent cancelled

soybean

orders.

Soybeans added 0.6% to $13.59 ½ a bushel for July, after winning some support from technical factors in bouncing off an "uptrend line" in the last session.

Resistance to more gains looks like being met at about $13.70 a bushel, where 20-day and 50-day moving average lines are grouped, while "closing below $13.30-13.35 would look bearish at this point" Mr Mawdsley said.

Data later

Will the rally hold? The signal from oats was undecided, with Chicago's July lot unchanged at $3.46 a bushel.

A better idea may be gained from weekly US export sales data, expected to show corn sales in line with last week's 444,000 tonnes, soybeans' in line with their 199,000 tonnes last time, and wheat potentially falling short of its 418,000 tonnes a week ago.

More reports will also emerge from the tour of Kansas hard red winter wheat crops, with Canada releasing a quarterly stocks report.

By Agrimoney.com

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