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Morning markets: weather, Russia, US trade extend crop rally

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The only was up for Chicago crops, even


, early on Thursday, as the US promise to keep low interest rates into late 2014 added fuel to the embers of stronger sentiment among grain investors.

The thought of easy money, with its potential for spurring demand of raw materials, let alone nurturing inflation and debasing the dollar, kept many dollar-denominated commodities ahead.



added 0.6%, with London


higher too, boding well for further gains in the CRB commodities index, which hit a two-month top in the last session, and closed above its 100-day moving average, a much-watched chart line, for only the second time since June.

Chicago grains did their bit too, threatening run-ins with their own 100-day moving averages, which are likely to offer stiff resistance to upward move (as with soybeans in the last session) but which, if broken through, may well spur a wave of further buying on the idea that momentum is behind the contracts.

'It is all coming together'

And why not, when there is some fundamental logic behind this, as Scott Briggs at Australia & New Zealand Bank noted.

"We said late last year that there were a few key market needs for a 2012 bull market in ags," he said, these being weather problems, a return of exporters to the US, and a floor put under prices offered by the highly competitive Black Sea exporters.

"It is all coming together, slowly," Mr Briggs said, with weather an issue in Latin American, parts of the former Soviet Union and even France, with Union Invivo, the top exporter of French wheat, on Wednesday warning of potential downside from a mild winter in leaving crops vulnerable to spring frost or drought.

Russia's rising grain prices have been well documented, along with a slowdown in exports from Ukraine, where a poor start to autumn crops is prompting farmers to hoard last year's harvest, and Kazakhstan, stymied by its poor transport links to Black Sea ports.

And as for US exports, "we have started to see some good wheat and corn export numbers", Mr Briggs said, noting that it was significantly cheaper, even after the price recovery over the last month, for Chinese users to buy US rather than domestic corn.

'Sales are expected to be large'

Still "a good rain here or there" and the rally will fade, Mr Briggs said, estimating that the market was currently "pricing 50% probability of needing to demand ration, and 50% probability of prices plunging to marginal cost on a solid global growing season".

And, going back to US exports, the balance may be shifted later with the latest US weekly crop sale numbers, of which expectations are reasonably ambitious.

"China was an active buyer heading into this week's New Year holiday and soybean sales are expected to be large," Kim Rugel at Benson Quinn Commodities said.

"The delayed start to Brazilian beans harvest due to rains is also seen supportive to nearby US demand, with exportable quantities not a Brazilian ports as of yet."

Soybean exports are seen coming in at 700,000-850,000 tonnes, higher than was achieved for much of late 2011, if below the previous week's 991,000 tonnes.



, the figure is seen at 500,000-700,000 tonnes, in line with the 584,000 tonnes last time, and for corn at 650,000-850,000 tonnes, also comparable with the previous figure of 760,000 tonnes.

How much rain?

Sure, not everything was going bulls' way, with the potential for significant rain at the close of the month in Argentina, where crops need it.

For the next five days, major weather models "all keep central, eastern and northern Argentina dry... and all of Paraguay and south eastern Brazil is dry as well", weather service said.

But rain is due next Tuesday. As to how much, the GFS model forecasts "a band of moderate showers and thunderstorms across south central Argentina"

But the European model "develops significant rain across all of central eastern and northern Argentina".

More will be known with updated runs of the models later.


Bidding war for supplies'

Still, the Argentine soybean crop "will have to see a sustained weather change in order for it to be completely out of the woods", Phillip Futures noted.

And March soybeans rose 0.6% to $12.20 ¾ a bushel, as of 08:50 GMT.

This was behind corn, which added 0.9% to $6.40 a bushel, continuing to feel too the pull from buoyant cash markets.

"Exporters and processors are waged in a bidding war for supplies, forcing grain prices higher," Phillip Futures said.

Wheat again topped the bill, up 1.0% at $6.47 ¾ a bushel.

'A warning sign'

Also as in the last session, the strength did not spread to New York and


, which extended its decline from Monday's two-month closing high, losing a further 0.3% to hit 96.59 cents a pound.

The decline was seen by Mike Stevens, the veteran cotton watcher based in Louisiana, as a "long-overdue correction, that's all".

The loss of premium of the March contract to May "has definitely been a warning sign of loss of momentum", with a so-called "double top" chart signal, often a sign of weakness, representing another.

Still, might strong exports emerge to revive the market?

"Each of the last two times the March contract dipped below 95 cents a pound - January 9 and January 12 - significant export sales took place to China and Mexico," Mr Stevens said.

That could have happened again on Wednesday, "but we will have to wait for next week's export sales report to find out".


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