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Morning markets: weather fears help palm oil, besides grains

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Some commodities continued on Friday to feel the pressure from the latest round of China jitters, overshadowing the brighter news of eurozone agreement on a new Greek debt deal.

HSBC data on Thursday saw the country's manufacturing sector shrinking output this month for the first time in a year, with an index reading at a 28-month low.


fell for a third successive day, and


for a second day, with the statistics "triggering concerns that the world's largest importer and consumer of natural rubber may slow its purchases", Ker Chung Yang at Phillip Futures in Singapore said.

Tokyo's benchmark December rubber contract fell 1.1% to 380.70 yen a kilogramme.

'Bad yields'


palm oil

, of which China is also a top buyer, escaped. Continuing, indeed, a recovery from an eight-month low reached earlier this month, amid waning hopes for production.

In Indonesia, the top palm oil producer, the Indonesian Palm Oil Producers Association, Gapki, estimated domestic output in 2011 at 22.5m-23m tonnes.

Sure, that signalled a rise on last year's 21.6m tonnes but it was below the 24.0m tonnes forecast by Oil World earlier in the week, when the analysis group warned that "price pressure from palm oil is thus unlikely to be over yet".

And some speculation in Kuala Lumpur has raised questions too over an Oil World assertion that output in second-ranked Malaysia will be "very large" this month.

"Market players said that the weather is bringing bad yields, therefore production in July is down slightly," a trader in Kuala Lumpur told Reuters, the news agency.

Holiday time

As a further stimulus to palm prices, the Muslim festival of Ramadan looms, a period of high demand (after dark) for foods, while likely to slow output as workers take holidays.




continued to edge higher, boosted by the International Energy Agency that it would not for now release any more crude from reserves, besides brighter economic hopes fostered by the Greek bail-out package. Much palm oil goes into making biodiesel.

Kuala Lumpur's benchmark October palm oil contract added 0.5% to 3,144 ringgit a tonne as of 07:40 GMT (08:40 UK time), taking its recovery from its July low above 4%.

Baking temperatures ahead?

Furthermore, rival vegetable


made ground in Chicago, adding 0.5% to 56.78 cents a pound for August delivery, getting a boost from upbeat weekly US export sales data released on Thursday, besides a downgrade by Argentina, the top exporter, to its 2010-11 soybean harvest estimate.

Indeed, farm commodities in Chicago made a broadly positive start, as


, the leader, once again felt upward pressure from the prospect of further unhelpfully hot US weather ahead.

Sure, the short-term outlook is more benign, with cooler temperatures, and some rain, expected for major corn-growing areas heading into the weekend, refreshing crops stressed by temperatures of more than 90 degrees Fahrenheit, and some case more than 100 degrees.

However, the official CPC model shows all of the US baking in the eight-to-14 day timeframe, with "much above normal" temperatures forecast for the central and lower Plains, and lower Corn Belt.

September vs December

OK, not all weather models agree, and some forecasters are sceptical.

"The eight-to-14 day is way too warm over the entire eastern half of the US," said.

But it caused enough uncertainty to help corn rebound after two losing sessions, with the best-traded December lot up 0.7% at $6.77 ¾ a bushel, matching, but not beating this time, the near-term September lot, which gained 0.7% to $6.83 ¾ a bushel.

Not that the removal of this gap is off the agenda, to judge by the recent trend,

"It has been almost a year that September corn has traded with a premium to December corn, and that spread is getting closer to even money," Mike Mawdsley at Market 1 noted.

Weekend factor

The uncertainty spread to


too, even though the grain has been feeling some pressure from Russia's storming return to exports after an 11-month break following drought last year.

"Willingness on traders' parts to push this market from the short side ahead of the weekend maybe somewhat muted limiting a strong move lower to finish the week," Dave Lehl at Benson Quinn Commodities said.

"Ever-changing weather forecasts and broader markets will continue to push and pull the wheat market."

Still, Chicago wheat for September delivery added 0.6% to $6.81 ½ a bushel, with the higher protein, but less speculator-influenced, Kansas and Minneapolis peers making smaller gains.


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