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Morning markets: uncertainties put limits on grains' retreat

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"The grain market is being torn between the darkening global economic outlook and extremely tight coarse grain supplies," was how Luke Mathews, at Commonwealth Bank of Australia, summed up the climate for crop investors.

And the concerns over the world economy were winning out in early deals on Tuesday, sending crop prices lower.

Any thought that grain futures might be able to build on gains made on Friday, when Lanworth's forecast of a US

corn

yield nearly 10 bushels below the official estimate sent prices soaring, were countered by the extent of the renewed economic fears, particularly over the US and the eurozone.

Indeed, the stock market declines kept coming, with Seoul

shares

closing down 1.1%, and Tokyo's Nikkei index losing 2.2%, although European markets did not in opening deals add too much to the last session's losses.

"S&P 500 Index futures are pointing to a 2.5% fall in the US market at present," Paul Deane at Australia & New Zealand Bank said.

New York

crude

lost more than 3%.

Copper

dipped 1.5% in Shanghai.

Lee's impact

Not that the ag market was without fresh fundamental news, with traders attempting to pick-up just quite what harm tropical storm Lee did to US crops over the weekend.

While it brought welcome rain to many areas, in others the precipitation was too generous, with reports, for instance, that some Louisiana and Mississippi

soybean

crops were flooded out.

On the Saturday-to-Sunday timeframe, "Over the Mississippi Delta, region the soaking heavy rains of tropical storm Lee made its impact with widespread areas of 1-to-4 inches covering 80% of Louisiana, Mississippi and up to 1 inch over southern Alabama," weather service WxRisk.com said.

From Sunday going into Monday, "widespread heavy rainfall continued across much of the Deep South in to the Tennessee valley - 75% coverage of 1-to-5 inches - with lesser amounts over eastern Ohio into west Virginia, western and central Pennsylvania and far south west New York state".

Haryana factor

Some of the affected areas are

cotton

country too, and Mr Mathews noted that traders in the fibre "will be anxiously awaiting reports of US crop damage following the weekend rains".

And at ANZ, Mr Deane highlighted concerns over upbeat forecasts for India's cotton crop, noting that while most of the second-ranked producer of the fibre (after China) had received "normal" monsoon rains over the last three months, "one state remains of concern - Haryana in the country's north".

"This state is important for cotton, and will be worth watching as the monsoon normally retreats from this area around mid-September," Mr Deane said.

"If this region misses rain in the next two weeks, around 10% of India's cotton production is likely to have adverse cotton yields."

Still, with cotton's fortunes, more than most farm commodities, seen linked to economic conditions, New York's best-traded December contract fell 1.3% to 104.50 cents a pound as of 07:40 GMT (08:40 UK time).

'No hint of frost'

In Chicago, the major contracts moved backwards pretty much in step, undermined by a soft performance by European grains on Monday, and with the risk of another weather threat, frost, which emerged last week, apparently waning.

"If you recall last week, there was a lot of hype or concern from some private forecasters that there was going to be a historically-early frost or frost scare for some portion of the upper Plains and/or the northern Midwest in September," WxRisk.com said.

"Looking at the model data out to September 20, there is absolutely no hint of any sort of air mass that is even remotely close to producing temperatures cold enough to support a frost."

That said, temperatures were high early last weekend, adding a further risk of stress to, in particular, soybean crops, with much corn already in the barn.

And there is the threat of another tropical storm, which came off Africa on Sunday, and "will likely become a hurricane", potentially hitting the Gulf of Mexico at the end of next week.

'Serious rationing needed'

Furthermore, on the demand side, grains retained support from ideas of poor yields and thin US supplies.

"If corn is anywhere near a 145 bushels an acre yield, one would assume serious rationing is needed," Mike Mawdsley at Market 1 said.

While traders "shook the trees" last week, "some private production numbers, if true, are very bullish".

Chicago corn for December fell 1.0% to $7.52 ½ a bushel, while soybeans dropped 1.1% to $14.29 ¾ a bushel for the best-traded November lot.

Wheat

for December fell 1.0% to $7.67 ½ a bushel in Chicago, and by 0.9% to $8.50 ¼ a bushel in Kansas, where the hard red winter variety is traded.

Later on…

As for movement later, some influence will come from a better handle of the after-effects of Lee, besides from weekly US export inspections data, showing how brisk shipments a proving, as well as the behaviour of external markets.

But the market is also expected to begin to see reports of the corn harvest emerging in earnest, which will give some idea of how likely a yield in the low 140s is.

By Agrimoney.com

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