PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 20:44 GMT, Friday, 31st Jan 2014, by
Evening markets: Brazil dryness sends coffee, sugar soaring

Have speculators overplayed their bearishness in arabica coffee and raw sugar futures?

Certainly, both ags enjoyed strong gains on Friday, turning one, arabica coffee, into one of the biggest gainers in commodities this month.

In soaring 4.3% on the day to 125.20 cents a pound in New York, for March delivery, arabica coffee ended January with 13.1% gains, recouping nearly half of its losses of 2013.

 Raw sugar for March added 3.7% in the session to end at 15.55 cents a pound, at least ending a poor month on a strong note and reducing its January losses to 5.2%.

That gain also put 0.85 cents distance between the contract and three-year lows set earlier this week.

'Moisture shortages'

The recoveries reflected dryness in Brazil, the top exporter and producer of both crops, which Australia & New Zealand Bank has been cautioning of for a while, but which finally appeared to catch investor attention.

Rains in Brazil over the next 10 days "are expected to be confined to far southern and north western" regions, rather than the central coffee and cane areas, MDA said.

Indeed, "moisture shortages will increase further in north eastern areas, especially Minas Gerais," the top coffee growing state, "and Sao Paulo", at the core of the Centre South cane belt.

Such dryness is "unfavourable for cherry growth" on coffee trees, the US-based weather service added.

Dry soils, or not?

And this on top of dryness already highlighted in many cane and coffee areas.

South Minas, for instance, has received 40-50% of average rainfall over the last two months, according to Brazilian consultancy Somar.

Not that Somar itself is too worried about the dry spell, saying that undue wetness which concerned producers earlier had backed up soil moisture reserves.

Still, with it being month-end too, a period which by repute encourages investors to tidy up their positions, hedge funds were encouraged to close some of their hefty short exposure to sugar, and their more modest such exposure to arabica coffee.

In London, white sugar for March closed up 3.6% at $424.00 a tonne, while robusta coffee, of which Vietnam produces more than Brazil, gained 1.9% to $1,811 a tonne.

'No indications of cancellations'

The session was broadly positive in grain markets too, albeit not to such extremes, with soybeans one of the better performers in gaining 0.6% to $12.82 a bushel in Chicago for March delivery, helped by a dog that didn't bark.

US Commodities noted that "no indications of cancellations from China" of orders of US soybeans have been reported, "despite persisting rumours" that buyers were turning to Brazil for supplies.

Rival broker Allendale noted that the "Argentine inflation problem is causing strong producer holding there which is slowing exports out of those regions", as producers hoard crop as a dollar-denominated hedge against fallout from the country's economic problems.

Competition from imports

Not that all the South American news was so bullish, with Darrell Holaday at Country Futures noting that "soybean values in Brazil continue to tumble.

"The difference between US values at the port Brazilian values is very close to making it profitable to import soybeans into the US.

"That provides the near-term cap in US soybean values."

Still, soybeans were underpinned by a resolute performance by soymeal, which gained 0.2% to $426.10 a short ton for March delivery, despite Cargill's announcement that it was to idle a North Carolina plant in the spring because of a seasonal slowdown expected in US demand.

North Carolina on the east coast is an area where livestock feeders have easy access to foreign supplies.

'Buyers going to US'

Export news was a help to Chicago corn too, in that the political unrest in Ukraine is encouraging buyers to return to US supplies, which are pretty competitive anyway, before shipping costs are factored in.

"Economic and civil unrest in Ukraine has caused world buyers to come to US for purchases of corn," Paul Georgy at Allendale said, noting strong US weekly export sales data released on Thursday.

The US announced today the sale of another 110,000 tonnes of corn to Spain.

And this demand is coming as, as CHS said, "movement off the farm remains light due to cold/wintery weather and the lowest prices of the last three-to-four years."

Corn for March nudged 0.1% higher to $4.34 a bushel.

While not a big leap, it was technically important in giving the contract its first close over its 50-day moving average in eight months.

'Enormous struggle'

Wheat managed an even smaller gain, by 0.25 cents to $5.55 a bushel for March delivery, nowhere near enough to get any many moving averages under its belt.

Any urge by speculators to cover short positions was curtailed by a dearth of export news, and an upgrade by the International Grains Council to its forecast for the world harvest in 2014-15, thanks to good northern hemisphere conditions so far.

Minneapolis-traded hard red winter spring wheat did signally better, rising 1.1% for March delivery to $6.04 a bushel, helped by weather upsets to transport, which are hampering the release of Canada's huge spring wheat crop onto the world market.

"Rail logistics remain an enormous struggle for both domestic and export purchasers," CHS said, adding that "US hard red winter spring wheat export sales have been the beneficiaries of Canada's logistical issues".

Paris wheat for March added 1.2% to E192.50 a tonne, helped by weakness in the euro, which improves the competitiveness of exports from eurozone countries such as France.

Morning markets: sugar, wheat try firm finish to poor month
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