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Morning markets: weak dollar stymies grain price correction

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Did investors overdo it on the bearish side in the last session?

Suspicions were raised by the nature of the fall in the last session, in which Chicago's July corn contract, for instance, fell a dime a bushel in the last 15 minutes, and soybeans $0.15 a bushel.

"It appears the trend following fund community was also interested in liquidating length prior to the [US Federal Reserve interest rate] decision," Brian Henry at Benson Quinn Commodities.

"I don't believe the trade was overly concerned about the possibility of a major policy change. The concern may have stemmed from Ben Bernanke's town hall explanation taking place after the Ag markets were closed."

At Phillip Futures, Ker Chung Yan said: "Traders worried that [Mr Bernanke's] comments would sway the dollar or other markets that influence commodities."

Shares rise

Mr Bernanke, the Fed chairman, gave a landmark press conference late on Monday, which, in the end, was viewed as signalling that the central bank was unlikely to go hard on turning off the taps of easy monetary policy – an idea well received on markets.

Tokyo's Nikkei index closed up 1.6%, and Hong Kong shares added 0.5%.

(That said, Shanghai stocks remained in a downswing, for a fifth successive session, shedding 0.9%, and most Chinese agricultural commodity futures were lower too – notably, again, cotton and bar, again, sugar.)

Slow spring sowings

The

dollar

, meanwhile, declined in the absence of any hint of any imminent moves to tighten monetary policy. The greenback fell 0.7% against a basket of currencies to its lowest since July 2008, making dollar-denominated assets, such as crops, more competitive as exports.

And that allowed some vent to thoughts that maybe too much weather premium had been removed from crops in the last session.

"The weather pattern maybe shifting, but it hasn't completely let go of its grip just yet," Mr Henry said, noting in particular the threat to US spring wheat sowings.

"The trade will begin to hear about limited spring wheat planting progress in the northern regions. Pace is going to be slow through the weekend."

Indeed, current planting delays, meant the September Minneapolis (spring wheat) lot "is quickly becoming an old crop contract also", rather than representing newly harvested grain.

'Just laughed'

At rival broker Market 1, Mike Mawdsley noted that the threat of damp to

corn

sowing was hardly over either.

"Our contact in Arkansas has registered near 12 inches in the last few days. Our Illinois contact 5.1 inches since Friday, and our Indiana contact just laughed," he said.

"If anyone is slated to get above normal rainfall in the next two weeks, it is these same areas."

As an additional prop to confidence, Standard Chartered analyst Abah Ofon said that he remained "bullish on corn on expectations of strong demand and sub-optimal US acreage", with seeding plans harmed by the poor weather.

May corn added 1.0% to $7.59 ½ a bushel, with the July lot gaining 0.9% to $7.66 ¼ a bushel as of 07:20 GMT (08:20 UK time).

Chart fillip

Mr Ofon was less upbeat over

wheat

, forecasting the grain will "eventually trade lower on larger US wheat acreage, improved summer weather and bigger exportable surpluses from the Black Sea region".

Nonetheless, the weather risks helped July wheat add 0.7% to $8.17 ¼ a bushel in Chicago, 0.6% to $9.28 ¾ a bushel in Kansas, and 0.5% to $9.58 ½ a bushel in Minneapolis - where that September contract added 0.6% to $9.54 ¾ a bushel.

Chicago's July lot had the extra technical boost of at least managing to bounce off its 50-day moving average in the last session, seen as showing limits to selling pressure.

And even soybeans joined in this time, adding 0.8% to $13.88 ½ a bushel for May delivery, and the same to $13.95 a bushel for July.

'Stand against high prices'

New crop

cotton

, a rival to corn and soybeans for acres in many southern US states, also found its feet, gaining 0.3% to 125.00 cents a pound for December delivery.

The old crop July lot remained in its downward spiral amid signs of high prices having switched off demand, shedding 0.6% to 153.39 cents a pound, and taking above 20% its losses this month.

"Cotton for $2.00 a pound appears to be a thing of the past, as mills take a stand against high prices by cancelling orders," Mr Ker said.

"Many mills are seeing lower yarn demand at current prices, industry experts say, though overall demand for cotton and cotton products is seen strong enough to support historically-high prices in the medium term."

Data later

Further evidence of spiked orders may come later when the US Department of Agriculture releases weekly US export sales data, which have shown a string of negative data, ie cancellations, for old-crop cotton.

For wheat, the market is expecting sales to beat last week's 303,000 tonnes, potentially by a 50% margin, with corn seen coming in in line with, or better than, the previous figure of 857,000 tonnes.

Soybeans are viewed doing well matching last week's figure 555,000 tonnes, falling potentially to 350,000 tonnes.

Also, the day will bring official US data on the March soybean crush, estimated at 139.3m bushels, up some 10m bushels month on month, but below last year's 156.1m bushels.

By Agrimoney.com

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