Grains Week Ahead-Yuan move welcome, but all eyes on weather

Sun Jun 20, 2010 9:18pm IST

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By Sam Nelson and Christine Stebbins

CHICAGO, June 20 (Reuters) - China's surprising move over the weekend signaling a new willingness to let its currency gain strength may give grain prices an initial boost this week, but recent adverse weather for world crops will be more important.

"I, and a few other commercials, see the news as mildly supportive. More important may be how the external commodity markets react to the news," said Dan Basse, president of grain and livestock industry consultant AgResource in Chicago.

"Chinese and U.S. weather is much more important to grain price direction in the week ahead," he said.

In what was seen as a largely political move to deflect criticism of its fixed exchange rate ahead of the G20 meeting this week, China's central bank on Saturday indicated it was ready to break a hard peg with the dollar that has come under intense criticism from the United States and other countries.

"This sounds more serious than previous rhetoric coming out of Beijing, but it would be wise to initially take the news with a grain of salt," said Bill Lapp, an economist with Advanced Economic Solutions in Omaha, Nebraska.

"The exchange rate flexibility is presumably an effort to tame inflation, which we have already observed in their recent purchases of US corn. In other words, a stronger yuan benefits U.S. ag exports. But we have already seen some benefit.

"Not sure what this does for prices Sunday night, but would think weather is still the first factor to watch," Lapp said.

Chicago Board of Trade wheat and corn futures rallied to three-week highs on Friday and soybeans traded around a one-month peak because of the turn to adverse crop weather.

So analysts say there could be follow-through strength in the markets this week if harsh weather patterns persist.

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