PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:53 GMT, Tuesday, 18th Feb 2014, by
Evening markets: Brazil drought fears fuel broad rise in ags

Whatever investors' did on President's Day, when markets took a day off, it sure fired up their bullish spirit.

On share markets, the S&P 500 equity index came within an ace of its record high.

And commodities had a robust day too, sending the CRB index to its best close in nigh on a year, up nearly 10% from a January 9 low.

'Lifting all boats'

Indeed, while there was plenty of talk around about dry Brazilian weather lifting coffee and soybean futures in particular, as discussed elsewhere on, there was also speculation of a more general rush of money into commodities, agricultural ones included.

"Volume has been heavy as a correction in the soy complex, after Friday's bout of profit taking, is seen lifting all boats," broker Benson Quinn Commodities said.

And hedge funds seem to be taking a far more positive view of agricultural commodity prices, as latest positioning data show.

At Country Futures, Darrell Holaday said that "we think the talk of hot and dry weather in Brazil is just something to say to try to explain the price breakout, as technical buying once again occurred".

'Drought became intense'

Indeed, soybean yields from Mato Grosso, Brazil's top soybean producing state, have been viewed as upbeat.

But it has to be reiterated that there was plenty of talk of poor weather effecting crops in other states, where crops are less forward.

"Satellite vegetation [data] February 11 indicated favourable yield potential in Mato Grosso, better than last season, with increased 'greenness'," said Gail Martell at Martell Crop Projections.

However, southern Brazil "continues to struggle with drought", she said.

"Parana and Rio Grande do Sul received welcome showers last week, but rainfall was variable with scattered coverage.

"The rainfall was not nearly heavy enough to cure drought that became intense in the past 30-40 days. The dryness has been especially threatening as it coincided with the yield-sensitive pod-filling stage."

Export fillip

As an extra fillip to soybeans, export news was positive too.

There was a lack of announcements from the US Department of Agriculture on Chinese cancellations of orders of US soybeans.

Indeed, actual US soybean exports, as measured by cargo inspections, were decent at 1.47m bushels, down some 100,000 bushels week on week but still well, well above the rate needed to meet the USDA forecast for the full 2013-14.

While monthly NOPA data on the US soybean crush was a little weak, the prospect of this being an anomalous factor, down to poor weather last month, diminished disappointment,

Chicago soybeans for March closed up 1.8% at $13.61 a bushel, the best finish for a spot contract for five months, busting comprehensively through the $13.50 level which had been seen as a technical barrier.

(Still, it was eclipsed by canola, which closed further the record discount to soybeans reached last week, gaining 2.4% to Can$407.90 a tonne in Winnipeg, helped by a dearth of farmer selling at levels which remain amongst the lowest in four years.)

Steaming coffee

That was not a patch on New York-traded arabica coffee, of course, which ended up 9.1% at 152.65 cents a pound for March delivery and up 8.8% at 154.85 cents a pound for May, the best closes for first and second contracts in a year.

It was also the biggest one-day price in nearly a decade.

Again, dry Brazilian weather, particularly acute in the main coffee producing state of Minas Gerais, was viewed as a big factor.

Robusta coffee, of which Brazil is not such an important producer, behind Vietnam, rose 3.2% to $1,875 a tonne in London for May delivery.

Raw sugar, was sent soaring too, after Unica on Monday cautioned over damage from drought to Brazil's cane crop, with New York's May contract soaring 3.2% to 16.50 cents a pound, the lot's best close of 2014, and nearly taking it back to its 75-day moving average.

Fund target?

Back in Chicago, corn - for which Brazilian weather is a factor for determining second crop sowings, as well as the fate of the main crop harvest gained 1.0% to $4.49 a bushel for March delivery, a four-month closing high.

Was fund buying a factor here too? CHS Hedging noted that hedge funds have returned to a net long position in Chicago corn futures and options for the first time in seven months.

"Will they start to build a long position going into the spring?" the broker asked, with last spring after all seeing price strength on sowing worries.

As an extra support, US weekly exports were strong, at 827,610 tonnes, up more than 130,000 tonnes week on week, easing concerns at observations of a softening US cash market now warmer weather is easing logistical concerns.

"Basis levels have a weaker tone on increased producer selling and ideas that improving weather could put more bushels in the pipeline," CHS Hedging said.

'Vulnerable to further upside'

Wheat did even better than corn, ending up 2.3% at $6.12 a bushel in Chicago for March, the best close for a spot contract since Christmas, despite some more mediocre US export data, at 226,507 tonnes, down nearly 200,000 tonnes week on week.

Indeed, the strong rise only underlined ideas that technical factors, rather than fundamentals, are having a large influence.

"The wheat market is vulnerable to further upside as the only remaining major grain contract still carrying large managed fund short," Richard Feltes at RJ O'Brien said.

Speculators still had a hefty net short of 43,225 in Chicago wheat futures and options as of a week ago, positions looking increasingly unprofitable.

Indeed, the March contract ended not far below its 75-day moving average, and well above 10-day, 20-day and 50-day lines, indicating that any short positions made in the last couple of months are under water.

With the rise in Chicago weighted towards the close of play, besides being helped by an easing dollar, Paris wheat failed to get too much of an updraft and ended up 0.4% at E196.25 a tonne.

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