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Evening markets: cocoa stars on busy day for ag commodities

So much for the idea of the £1,700-a-tonne mark representing a "wall" to cocoa prices.

London futures bust above this level with ease, helped by talk that forthcoming International Cocoa Organization data will show a bigger-than-expected drop in inventories over 2013-14.

Reportedly, preliminary data shows a 300,000-tonne drop over the season, nearly twice as much as previously factored in, and implying end-of-season stocks at a little over 1.5m tonnes.

That would drag the global stocks-to-use ratio well below 40%, into levels which, for cocoa, are relatively tight.

Prices leap

Whatever, it countered some of the negative talk which has been circulating around markets, with deliveries from West African producers continuing to beat expectations.

Furthermore, Indonesia is halving its cocoa export tax to 5%, potentially boosting shipments.

But London's May contract soared 3.4% to £1,763 a tonne, finishing just £1 short of the intraday high, and recording its highest close of 2014.

In New York, March cocoa jumped 3.5% to $2,791 a tonne, also its best close of the year so far.

Sugar holds firm

Buyers were less recalcitrant on other agricultural commodities too,

Raw sugar for March failed to repeat the last session's fall to something beginning with a 14, finding support at 15.00 cents a pound and regaining some ground to close at 15.04 cents a pound – 0.01 cents up on the day.

"Given the overly dry weather that has been afflicting Brazil's Centre South growing region for weeks now, it remains to be seen whether the sugar cane crop will actually achieve the high growth rates that are projected" for 2014-15, Commerzbank said.

"What is more, as prices fall so too does the incentive for sugar mills to produce sugar, meaning that more sugar cane could go into producing ethanol."

Currency factor

But can the resilience last?

"The ongoing weakness of the Brazilian real poses a downside risk for the sugar price because it makes for higher revenues from sugar exports and producers in Brazil can live with lower world market prices," Commerzbank added.

And the real extended losses on Thursday, shedding 1.1% against the dollar – which itself was weak, tumbling 1.0% against a basket of currencies.

Indian decision

Still, Sucden Financial flagged the prospect of a much-awaited decision from India over sugar subsidies, which could spur exports.

"Should the subsidy be deemed too low to bridge the gap between the domestic price and the world market price we may see a similar reaction as was seen last Thursday, when the market traded up to over 15.50 cents a pound.

"The market is bearish and short so a short-covering rally may be sparked off.

"The market may be holding its ground today awaiting a decision out of India."

Demand signs

Other commodities managed to find more succour from the tumbling dollar, with wheat - which like sugar has been setting its lowest levels since 2010 - managing a more convincing recovery.

The dollar weakness comes at a time when many importers have been in the market, taking advantage of low prices, with Saudi Arabia tendering for 660,000 tonnes of wheat.

Ethiopia tendered for 70,000 tonnes of wheat, while Taiwan bought 73,400 tonnes of US supplies, and Japan purchased 99,000 tonnes.

This following sizeable Algerian and Iraqi purchases on Wednesday from the world market, and a buying spree by Egypt, the top importer, this month too.

"Purchases by Algeria and Iraq signalled a recent drop in prices is boosting import demand," US Commodities said.

'Protective snow cover'

Furthermore, supply threats are growing too, with cold weather hitting the former Soviet Union and the US (again).

The former Soviet Union cold snap does not look so worrying, thanks to preceding snows.

"Low temperatures should not have a deep impact on crop development as yesterday night it snowed," Agritel said, noting 15 cm of snow fell outside its office in Ukraine, where temperatures will hit minus 20 Celsius on Friday.

While snow is thinner in many areas of Russia, including the important southern district important for wheat exports, "snow is forecast," the consultancy said.

"Frost damage is not totally out of the question, but crops should be able to count on a protective snow cover."

'More talk of winterkill'

But not all areas of the US look so lucky.

"Temperatures in the Midwest are forecast to remain below zero degrees Fahrenheit over the next 10 days, with 15% of wheat in the region at risk of winterkill due to limited snow cover," US Commodities said.

"It could be cold enough to damage wheat in the eastern Midwest."

CHS Hedging, noting that "seriously cold temperatures are moving across the US Midwest this week", flagged "more talk of winterkill in parts of the US winter wheat areas, from the frigid temperatures".

"Cold has crippled movement and is threatening to kill the crop in some areas," the broker added.

Price gains

Wheat for March ended up 1.6% at $5.70 a bushel in Chicago, very nearly closing above its 10-day moving average for the first time since early December.

Paris wheat for March gained 0.4% to E193.75 a tonne, indeed ending above its 10-day moving average for the first time in 2014, if ending well below the E196.00 a tonne reached earlier.

Strong weekly European Union soft wheat exports, of 819,000 tonnes, reassured buyers, taking the total shipments in 2013-14 to 16.7m tonnes so far, up from 10.8m tonnes a year ago.

London wheat for March struggled, ending up 0.2% at £152.00 a tonne for March, facing the headwind of strong sterling, which hit its highest against the dollar since April 2011, buoyed by expectations that a reviving UK economy will bring a relatively swift rise in interest rates.

'Increasing needs'

Wheat's strength, and dollar weakness, helped rival grain corn too, as did the freezing US weather.

"Cold temperatures are increasing needs for corn and soymeal in the livestock sector," CHS Hedging said.

At Country Futures, Darrell Holaday, said: "The cold temperatures in the Midwest are restricting cash movement," at a time when "ethanol producers are looking for corn, despite the fact that margins have somewhat collapsed this week".

Official data showed US ethanol production last seek recovering 37,000 barrels a day to 905,000 barrels a day, helped by the clearing of inventories at biofuel plants for which transport was disrupted the previous week by the "Polar vortex" cold snap.

'Problems in ethanol showing up'

That said, stocks rose last week too, by 940,000 barrels to 17.02m barrels.

"The problems in ethanol are showing up… That is negative for ethanol and corn eventually," Mr Holaday said.

In fact, ethanol futures for March extended their recent decline, ending down 1.5% at $1.763 a gallon in Chicago.

March corn futures added 0.7% to $4.29 a bushel, stopped just short of the contract's 50-day moving average, a close above which would have boosted its technical credentials a bit more.

Peso plunge

As for soybeans, they remained under a bit of pressure, amid continued, if unconfirmed talk, of China cancelling orders of US supplies in favour of South American ones, now Brazil's harvest is ramping up and apparently producing strong early results.

As an extra downer, Oil World reported that Brazil may postpone until May or June an increase, to 7% from 5%, in the level of biodiesel which must be blended into fuel, signalling less demand for feedstock soyoil.

Still, a slump in the Argentine peso, which suffered its biggest one-day fall since 2002, provided less negative news.

While improving the affordability of Argentine exports, such as soybeans, declines of this extent are only fuelling farmers' desire to hang on to crops as a hedge against devaluation.

"There is still talk and concern about Argentine farmers hoarding soybeans as the Argentine peso continues to decline," Anne Frick at Jefferies Bache said.

'Significant stress'

Furthermore, while ideas of Argentine weather improve, not all the news from South America is so upbeat.

"In Argentina, the recent hot/dry weather has put significant stress on pod-filling soybeans. Some crop losses are expected," US Commodities said.

The Buenos Aires grains exchange pegged the crop at 53.0m tonnes, below the 54,5m tonnes at which the US Department of Agriculture estimates the harvest.

And CHS highlighted that "there appear to be some rumblings that the Brazilian soybean crop could fall short of trade expectations, with some local estimates coming in below 90.0m tonnes".

Soybeans for March actually spent much of the day in positive territory before a late slide to close down 0.2% at $12.77 a bushel, staying just above its 200-day moving average.

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