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Morning markets: weather helps crops defy broader weakness

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Farm commodities' divorce from other risk assets took another step towards the courts.

By rights, external markets should have dragged crop futures lower.

Shares

weakened on continued fears for the world economy, with Tokyo's Nikkei index closing down 1.0% at a five-month low, Seoul's Kospi down 2.0%, and Shanghai stocks 0.7% lower in late deals.

The

dollar

strengthened a tad, gaining 0.1% against a basket of currencies, weakening the case for dollar-denominated exports.

And, indeed, New York

crude

lost 0.8% to $81.62 a barrel as of 07:20 GMT (08:20 UK time), although moving on slightly different factors to many other markets (which will spend much of the week obsessing about a speech on Friday by Federal Reserve chairman Ben Bernanke).

The prospect of an end to conflict Libya, the North African oil producing state, bodes well for a boost to supplies.

'Rainfall underperformed'

But farm commodities' trial separation continued, in part because of they tick the box as a hedge against inflation, being the kind of assets whose price rises are included in inflation measures.

Also, fundamental news continued to lend support.

In the US, rain forecast for the weekend to help crops which have seen somewhat patchy moisture relief, following July's heatwave, continued to disappoint.

"The forecasted rainfall that was supposed to occur over various portions of the eastern Plains and the western Corn Belt essentially underperformed over the weekend," David Tolleris at weather service WxRisk.com said.

"The models specifically forecasted more significant rains than what actually fell over south west Iowa, eastern Nebraska, eastern Kansas and Missouri."

Furthermore, "the pattern looks drier for the next 10 days. There will be several different cold fronts which will pass through the Midwest over the next seven-to-10 days, but none of them show any sort of significant shower thunderstorm activity with their passage."

As for Irene - a tropical storm, and potentially hurricane, brewing up - it "will not bring significant or even moderate rain to any portion of the eastern Corn Belt", at least this week.

Tour anticipation

As for what this means for

corn

and

soybeans

, more on the US crops' condition will be revealed this week with the annual ProFarmer tour.

"All eyes and ears will be waiting to see and hear what they are finding. Everyone is expecting them to find corn problems," Mike Mawdsley at Market 1 said.

Not that estimates at this stage in the season are necessarily definitive, with soybeans, for instance, still possessing the potential for big improvements, should rains arrive.

"A year ago the tour was reported to have come in with an average yield 12 bushels per acre above the US Department of Agriculture [final figure], but if I remember correctly nearly everyone's estimate was on the plus side last year," Jon Michalscheck at Benson Quinn Commodities said.

Corn for December added 0.7% to $7.30 ¼ a bushel, while November soybeans added 0.3% to $13.72 a bushel, still feeling some pressure from (questioned) reports that China is to release 4m tonnes of the oilseed from state reserves.

'Quality should be downgraded'

But

wheat

got a bigger share of the positive news, helping it to even bigger price gains.

It too has a stake in dry US weather, given that farmers in the drought-afflicted South want soil moisture for their winter wheat crops, being planted next month.

"Dry conditions in the southern Plains will continue to be a supporting factor," Dave Lehl at Benson Quinn said.

However, weather in Europe is a bigger factor – notably the rains in central regions which have slowed harvest and raised quality fears.

"In Germany, harvests were reined in on strong rains this weekend," Agritel, the Paris-based analysis group, said.

"Operators consider that 60 % of surfaces are still to be harvested in the key north region of Germany. As a matter of fact, quality should be downgraded again."

Difficult peak

Back in the US, Minneapolis spring wheat continues to be supported by "a later-than-usual harvest and reduced acres", Mr Lehl said.

"Trying to find a top in nearby spring wheat futures will prove difficult with a reluctance to sell by anybody who has ever traded spring wheat futures before."

And there were signs of demand too even at these elevated levels, with United Arab Emirates coming in with a 75,000-tonne tender.

Chicago (soft red winter) wheat for September added 1.2% to $7.39 ½ a bushel, while Kansas hard red winter for the same month gained 0.7% to $8.25 a bushel.

The Minneapolis equivalent gained 0.9% to $9.54 a bushel.

'Output likely to fall'

In Asia, Chinese crop futures were firm, too, pretty much across the board, even

cotton

, which made a gain of 0.1% to 20,885 yuan a tonne, in contrast to a decline of 0.8% to 105.33 cents a pound in New York December cotton, one of the few crops to show negative.

Kuala Lumpur

palm oil

added 0.5% to 3,019 ringgit a tonne, gaining support from production fears for Indonesia and Malaysia, besides from Chicago soybeans elsewhere in the oilseeds complex.

"As estate workers took extended leave for the Muslim fasting observance of Ramadan, output is likely to fall in the coming weeks," Ker Chung Yang at Phillip Futures in Singapore said.

And in Tokyo,

rubber

rebounded, adding 1.3% to 356.80 yen a kilogramme,

By Agrimoney.com

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