RTRS- U.S. corn and soy ratings slip 2 pts, worst since 1988

CHICAGO, July 30 (Reuters) - Corn and soybean conditions in the U.S. Midwest deteriorated further last week as the most expansive drought in more than 50 years ate away at crop prospects in major producing states including Iowa and Illinois, government data on Monday showed.

The U.S. Department of Agriculture rated 24 percent of the U.S. corn crop in good-to-excellent condition as of Sunday and 29 percent of the soybean crop in good-to-excellent shape, both down 2 percentage points from the previous week.

The ratings for each were the worst since the comparable week in 1988, another year of severe drought in the nation's crop-growing mid-section.

Crops improved marginally in Ohio and Indiana where condition ratings were already among the poorest in the country and in smaller-producing states such as Wisconsin and Michigan, but those improvements were overshadowed by eroding ratings in the top producing states in the central and western Midwest.

Concerns that the most expansive U.S. drought since 1956 was intensifying in areas that had not been as severely impacted earlier in the season propelled U.S. corn and soybean prices to all-time highs this month.

Much of the U.S. corn crop was largely beyond repair, but soybeans were moving into their critical flowering and pod-setting phase of development when heat and moisture stress can be devastating to yields.

In Iowa, Illinois, Nebraska and Minnesota, the top 4 corn and soybean producing states, corn crop ratings fell by 2 to 5 points and soybean ratings dropped 3 to 4 points.

A Reuters poll of 10 analysts had expected a 3 percentage point drop in the corn rating and a 2 point drop in soybeans.

The U.S. corn crop was rated 41 percentage points below the five-year average and 5 points above the 19 percent good-to-excellent rating in the comparable week during the drought of 1988.

The soybean rating was 34 points below the five-year average and 10 points above the same week in 1988.

Analysts and crop experts also said further declines in condition ratings could be expected next week as weather remained stressful to each crop.

Dry and hot weather in the U.S. Midwest for the next week or two will further erode crop conditions, trimming this year's corn and soybean production, an agricultural meteorologist forecast on Monday.

"It looks like a continued trend of below-average precipitation in the Midwest for the next week to 10 days," said John Dee, meteorologist for Global Weather Monitoring.

Temperatures this week will warm into the upper 80s to low 90s degrees Fahrenheit (30-35 degrees Celsius), with only a few light showers in the east on Monday and some rainfall later in the week, he said.

"There are no widespread soaking rains in sight. Thursday and Friday there could be scattered showers, and by the weekend from 0.30 to 0.80 inch (0.8-2 cm) with coverage of about 75 to 80 percent," Dee said.

"There won't be as much stress as recently, but crops will continue to deteriorate," Dee said.

Analysts have rapidly been lowering their outlooks for this year's corn and soybean crops, boosting the price of each to record highs.

RTRS- Brazil forward soy sales climb, physical biz stalls-Celeres

SAO PAULO, July 30 (Reuters) - Strong Brazilian soybeans prices were driving aggressive forward sales of next crop, but volatile markets have paralyzed sales in physical, old-crop beans, local grains analysts Celeres said on Monday.

Brazilian soybean producers are selling the 2012/13 crop earlier than ever before with 41 percent of next season's output already sold, two months before planting starts. That is up from the 39 percent last week. Celeres said 10 percent of the then-new crop was sold by the week of July 27, 2011.

Record high soybean prices due to drought in the United States, the world's largest producer, and the weak real against the dollar have induced local growers to lock in forward sales of the current and future crops at record volumes, Celeres said.

The current crop that ended harvest in May is well advanced historically in sales. Producers sold 97 percent of the 65 million tonnes crop by last week, up from 79 percent last year at this time, but unchanged from the week before.

Celeres said the sharp decline in futures prices over the past week, after rains returned to parts of the U.S. grain belt, chilled the sale by local producers of their few remaining old crop beans.

Conditions appear almost perfect for the soy belt to reclaim territory lost to corn and cotton in past years, while extending its reach into untapped pasture land. (nL1E8GVIL2)

Celeres said that returns on corn versus soybeans in important grain states were not as attractive as in 2011 and the early part of this year, which would induce farmers to sow as much soy as possible this planting season starting in September.

The analysts estimate potential returns from a bag of soy were almost three times those of corn for the coming crop. The bumper winter corn harvest would keep local prices contained for the coming weeks and favor planting of soy during the main summer crop season.

Brazil is the world's second-biggest soybean producer after the United States.

RTRS- Midday US weather updates drier than before

CHICAGO, July 30 (Reuters) - Midday weather updates indicated even drier weather than earlier forecasts in the U.S. Midwest for the next week or two which will increase stress on corn and soybean crops that already have been slashed due to the worst drought in over 50 years, an agricultural meteorologist said on Monday.

"It doesn't look good for crops at all, now it's a matter of just how bad it's going to get," said Andy Karst, meteorologist for World Weather Inc.

Karst said the updated forecast showed less rain late this week and early next week for South Dakota and southwest Minnesota than earlier expected.

And, "for next week there is less rain for Nebraska and northwest Iowa. The midday's showed some showers for the eastern Corn Belt on Aug. 7-8, but that is pretty suspect," he said.

"It looks like a continued trend of below-average precipitation in the Midwest for the next week to 10 days," said John Dee, meteorologist for Global Weather Monitoring.

Temperatures this week will warm into the upper 80s to low 90s degrees Fahrenheit, with only a few light showers in the east on Monday and some rainfall later in the week, he said.

"There are no widespread soaking rains in sight. Thursday and Friday there could be scattered showers, and by the weekend from 0.30 to 0.80 inch with coverage of about 75 to 80 percent," Dee said. "There won't be as much stress as recently, but crops will continue to deteriorate."

Recent rains brought some relief from drought in the northern and eastern Midwest, but overall crops will continue to suffer, especially in the central and southern Corn Belt.

A lessened U.S. harvest was raising worries about the ability of the world's largest food exporter to meet the needs of food processors, livestock producers and ethanol makers. The lack of rain was also drying up waterways and slowing river shipments of commodities to export ports on the Gulf of Mexico.

Corn and soybean conditions have been on a rapid skid this summer, falling to their worst conditions since the last U.S. drought of 1988. Crop specialists expect the U.S. Department of Agriculture to report another drop in conditions in its weekly crop report released later on Monday.

Commodity Weather Group (CWG) on Monday said recent rains had scaled down the driest areas to about 40 percent of the Midwest soybeans for much of this week.

But "the return of drier conditions to the central and southwestern belt will allow concerns to quickly return to at least half of the belt," CWG said.

Chicago Board of Trade (CBOT) corn futures were up more than 20 cents per bushel, or nearly 3 percent, and soybeans up 35 cents, or 2 percent, on Monday as investors bought on fears of a crop shortfall in the U.S. this year.

RTRS- Malaysia boosts tax free palm quota to maintain exports-sources

July 30 (Reuters) - Malaysia will increase shipping quotas for tax free crude palm oil by up to 2 million tonnes this year to help planters cope with an expected increase in output, sources said on Monday as the world's No.2 supplier struggles to maintain export momentum.

The move will lift Malaysia's total duty free CPO export quota to 5 million tonnes this year and comes after top importer India this month raised base import prices of refined palm oil, encouraging more crude palm oil shipments.

Both Malaysia and India are trying to retain market share after top palm oil producer Indonesia slashed in September export taxes of refined palm oil, used as a cooking oil, to boost its own processing industry.

"We are doing this on a case-by-case basis for local firms since production is starting to rise in the second half of this year and exports are a bit slow," said one government official who declined to be named due to the sensitivity of the issue.

"It is a stock management effort. This is in an interim response to Indonesia at the moment. We are still formulating a comprehensive response," the source added.

Malaysia says Jakarta's export tax cut has eaten into its own refined palm oil shipments and hurt its processors. India shares these concerns, especially as it has spent billions to build up its edible oil manufacturing sector.

Benchmark Malaysian palm oil prices rose 1.6 percent on Monday, driven partly by concerns of the U.S drought crimping soyoil supplies and also news of the higher quotas from Malaysia, traders said.

EXPORT QUOTAS

The five million tonnes set aside for export account for 27 percent of Malaysia's 2012 output of 18.4 million tonnes, potentially lifting local delivered prices of crude palm oil and narrowing their discount to the Indonesian export grade.

The tax free export quota, initially designed to help large planters such as Sime Darby SIME.KL and IOI Corp IOIB.KL ship out cheap feedstock for their overseas refineries, appears to have turned into a stock management tool for the government.

Production has risen consistently since March this year and it expected to go as high as 1.9 million tonnes in September, the Malaysian Palm Oil Board estimates, which is well within the peak yield season for oil palms.

On the other hand, exports have fallen 18.6 percent in July 1-25 to below 990,000 tonnes compared to a month ago due to a lull in Asian demand, data from cargo surveyors show, which has stirred concerns about oversupply.

"The extra allocation of 2 million tonnes will benefit the planters more than the refiners," said a trader with a local refinery. "I am sure that this will be subject to abuse."

Many traders have criticised the quota system for its lack of transparency, saying licence holders offer tax free crude palm oil to domestic refiners, allegations planters deny.

Refiners also complain that the export quota create an artificial supply squeeze, raising feedstock prices and lowering margins further.

Some traders say the extra export quota will help support palm oil prices in what is likely to be an election year. Many voters are also small oil palm farmers.

"Exports have been slowing and so have the earnings, so the government is using the quota to keep revenue flowing for the planters," said a trader with a palm oil firm that holds a licence for export quotas.

RTRS- U.S. drought, El Nino to support Malaysia palm oil prices in 2012

SINGAPORE/KUALA LUMPUR, July 30 (Reuters) - Average palm oil prices in Malaysia may hold their ground at 3,200-ringgit this year, a Reuters poll showed, supported by a squeeze in supplies of edible oil from the drought-hit U.S. Midwest and the brewing El Nino weather pattern.

The median forecast of 30 analysts who cover the palm oil sector came in at 3,200 ringgit ($1,016) per tonne for the whole of 2012, just 1.2 percent lower than an average of 3,240 ringgit in the first half of the year.

The prediction also beat the 3,000 ringgit touted for the entire year in January, signaling that analysts are counting on demand shifting to palm oil from soyoil, which is now trading at a more than a $200 per tonne premium due to tight supplies.

"Declining palm oil stocks and a spillover of bullish sentiment from the U.S. drought-driven rally are likely to continue supporting palm oil prices around 3,000 ringgit," said Pawan Kumar, a Rabobank analyst in Singapore, who pegged average 2012 palm oil prices at 3,128 ringgit.

"But a slowdown in exports combined with a seasonal upswing in palm oil production will likely push stocks higher, capping the price gain."

Malaysian palm oil stocks hit a 14-month low in June, fanning fears of tighter global supplies at a time when the drought in the United Sates was intensifying. Prices hit 3,628 ringgit in April, the highest level seen so far this year.

FESTERING CRISIS

Estimates for 2012 prices ranged between 2,900 and 3,938 ringgit, with analysts divided on the impact the festering euro zone debt crisis and slowing global growth would have on food demand in India and China, the world's top edible oil buyers.

Phillip Futures commodity analyst Ker Chung Yang said India's high inflation and the weak rupee could hurt appetite, though he thought demand from China would remain supportive.

"We expect demand from China to continue to underpin prices, especially given the current huge discount between soybean oil and palm oil," the Singapore-based analyst said.

Other analysts surveyed said that demand growth from Asia's biggest buyers could lift average palm oil prices above the 3,200-ringgit level.

"Demand from emerging economies in Asia like China, India and Indonesia should still grow year-on-year on the back of population growth and higher crude palm oil consumption per capita," sa i d Alan Lim Seong Chun, an analyst at Malaysia's Kenanga Investment Bank.

RISING ODDS

Respondents, surveyed over two weeks, mostly said prices could get further support from tree stress caused by the onset of the El Nino weather phenomenon, which typically brings dry weather to Southeast Asia and could crimp yields.

Add that to the ongoing drought in the U.S. and there is a case for a price rally, said CIMB Investment analyst Ivy Ng.

"The drought has resulted in a 5 percent cut in U.S. soybean production forecasts, which is good news for the crude palm oil price," Kuala Lumpur-based Ng said in a July 17 note to clients.

"We are more positive on second-half prospects given the rising odds of an El Nino."

Analysts pegged average palm oil prices lower at 3,080 ringgit for 2013, saying the euro zone debt crisis was still likely to be a factor broadly weighing on food and industry demand for the tropical oil.

"We believe the greatest downside risk for our price forecast is biodiesel consumption," said Ben Santoso, DBS analyst in Singapore.

Only 10 percent of palm oil consumption is channeled into the energy sector, however, according to Hamburg-based oilseeds analyst Oil World. That means palm oil could benefit from filling in demand gaps left by other vegetable oils in the case of a crude oil price surge.

"Palm oil is at a real crossroads with few catalysts to the upside unless crude oil prices shoot up or weather is bad - though the latter seems to be priced in," said Chris De Lavigne, vice president of Industrial Practices at Frost & Sullivan.

"At this stage with so much volatility, 2013 can only be guesswork."

Trader's highlight

DJI- NEW YORK, July 30 (Reuters) - U.S. stocks finished mostly flat on Monday as investors paused following the best two-day run this year, with central bank meetings and a full load of U.S. economic data looming.

Traders have bet that the Federal Reserve and the European Central Bank will suggest further action to stimulate their economies is on the way when each meets later this week.

The sectors least sensitive to economic growth - telecoms, consumer staples and utilities - posted healthy gains, suggesting a cautious move to defensive plays.

Blue chips like Wal-Mart Stores WMT.N and AT&T T.N hit new 52-week highs. Wal-Mart rose 0.6 percent to end at $74.98 after hitting $75.24 earlier. AT&T added 0.8 percent to close at $37.43 after hitting $37.69.

Last week, a strong statement from ECB President Mario Draghi drove the Dow above 13,000 for the first time since early May, and gave the S&P 500 its biggest two-day rally since December.

"With all that news later in the week and after the big run, I think there's probably a little bit of hesitation to run ahead of these numbers," said Janna Sampson, co-chief investment officer at OakBrook Investments in Lisle, Illinois.

The Fed begins a two-day meeting on Tuesday while the ECB will meet on Thursday. The U.S. economic calendar is heavy this week, including Friday's payrolls report for July.

The Nasdaq Composite underperformed the other major indexes, weighed down by a 5.9 percent drop in shares of Citrix Systems CTXS.O and a 1 percent fall in Intel INTC.O.

The Dow Jones industrial average .DJI dipped 2.65 points, or 0.02 percent, to 13,073.01 at the close. The Standard & Poor's 500 Index .SPX edged down just 0.67 of a point, or 0.05 percent, to 1,385.30. The Nasdaq Composite Index .IXIC fell 12.25 points, or 0.41 percent, to end at 2,945.84.

About 5.5 billion shares changed hands on the New York Stock Exchange, the Nasdaq and the Amex - 18.5 percent below the year-to-date daily average of 6.75 billion shares through last Friday.

On the NYSE, decliners slightly outnumbered advancers by 1,520 to 1,460. On the Nasdaq, 1,586 issues fell while 883 shares rose.

NYMEX- NEW YORK, July 30 (Reuters) - U.S. crude oil futures fell for the first time in five sessions on Monday on concerns that stimulus expected from the United States and Europe may fail to lift their slowing economies, overshadowing signs of lower OPEC output.

 

CBOT SOYBEAN- Soybean futures on the Chicago Board of Trade rose nearly 3 percent and set a one-week high on concerns that dry U.S. crop weather over the next two weeks would further stress the crop, traders said.

* Soymeal and soyoil also ended higher, with soymeal gaining against soyoil on meal/oil spreads.

• Midday weather updates indicated even drier weather than earlier forecasts in the U.S. Midwest for the next week or two, which will increase stress on corn and soybean crops that already have been slashed due to the worst drought in over 50 years. (nL2E8IU551)

• Analysts surveyed by Reuters expected USDA in its weekly crop report on Monday to show U.S. soybean condition ratings down 2 percentage points, at 29 percent good to excellent. (nL2E8IU493)

• Trade expecting no first-day deliveries against CBOT August soybean and soymeal futures on Tuesday, but soyoil deliveries were seen at 1,000 to 2,000 contracts. (nL2E8IU8ZA)

• Brazilian soybean producers are selling the 2012/13 crop earlier than ever before, with 41 percent of next season's output already sold, two months before planting starts - analyst Celeres. (nL2E8IU6MO)

• USDA reported export inspections of U.S. soybeans in the latest week at 15.498 million bushels, within a range of trade estimates for 12 million to 17 million.

• Average palm oil prices in Malaysia may hold their ground at 3,200-ringgit this year, a Reuters poll showed, supported by a squeeze in supplies of edible oil from the drought-hit U.S. Midwest and the brewing El Nino weather pattern. (nT9E8GG03S)

FCPO- SINGAPORE, July 30 (Reuters) - Malaysian crude palm oil edged to a one-week high on Monday, tracking gains in broader financial markets on expectations the Federal Reserve and European Central Bank (ECB) will announce new measures to encourage growth, boosting commodity demand.

Persistent drought in the U.S. Midwest that threatened soy crop yields also supported prices, with traders expecting a crop downgrade in the weekly progress report by the U.S. Department of Agriculture (USDA), due later on Monday. GRA/

Tighter soy crop supply leading to less soybean oil could shift vegetable oil demand to the cheaper palm oil.

"Euro zone worries have eased a little and rain that was anticipated in the U.S. did not match expectations," said a Singapore-based trader with a foreign commodities house. "But we will have to wait and see tonight's USDA crop progress report for price direction."

The benchmark October palm oil futures FCPOc3 on the Bursa Malaysia Derivatives Exchange closed 2.7 percent higher at 3,005 ringgit ($954) per tonne. Prices earlier touched 3,007 ringgit, the highest level since July 23.

Traded volume stood at 24,699 lots of 25 tonnes each, a tad lower than the usual 25,000 lots.

Technicals turned bullish as palm oil broke a resistance at 2,987 ringgit and could trigger a gain to 3,021 ringgit, Reuters market analyst Wang Tao said. (nL4E8IU0VZ)

Investors are hoping Fed and ECB policy meetings this week will produce stimulus measures, especially after ECB President Mario Draghi pledged he would do whatever it takes to safeguard the euro. MKTS/GLOB

On the local front, market players will be looking out for Malaysia's July palm oil export data after earlier numbers showed signs of slowing demand.

Malaysia will increase shipping quotas for tax free crude palm oil by up to 2 million tonnes this year to help planters cope with higher output in the next few months, government sources said, as the world's No.2 supplier struggles to maintain its export momentum.

REGIONAL EQUITY-BANGKOK, July 30 (Reuters) - Southeast Asian stock indexes closed higher on Monday, with Singapore, Indonesia and the Philippines rising to their highest close in more than one week as investors hunted for bargains in large caps and financial shares in a reporting season.

Singapore's Straits Times Index .FTSTI rose 1.14 percent, with casino operator Genting Singapore Pcl GENS.SI surging 7.4 percent, rebounding after a combined loss of 13.8 percent so far in the month to Friday. (nL4E8IU1J6)

Jakarta's Composite Index .JKSE edged up 0.37 percent, building on a 2.3 percent gain in the past three sessions while the Philippine index .PSI gained 1.1 percent after Friday's 1.3 percent rise.

Among the bright spots in the region, Bank Mandiri BMRI.JK, Indonesia's biggest lender, jumped 2.6 percent before it reported after market close that its second-quarter net profit rose 48 percent from a year ago.