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Evening markets: coffee, juice, sugar hurt by currency fears

Ideas that the emerging market jitters might prove positive for agricultural commodities, in encouraging investors to diversify assets, took a dent when some softs proved soft indeed.

OK, shares, generally, had another weak day, with Asian stocks suffering and London shares closing down 1.7%, although New York's Dow Jones industrial Average showed small gains in late deals.

But commodities hardly prospered either, with the CRB commodities index shedding 1.0%, ending a sharp rebound from a January 9 low.

And the likes of coffee, cotton and sugar did their bit to please commodity bears, if for different reasons.

Food vs industrial

Cotton often tends to march in closer step with shares, and broader economic sentiment, given that it is an industrial commodity, rather than a food crop like most other ags with relatively consistent demand.

Cotton for March dropped 3.4% to 84.25 cents a pound, catching out hedge funds which, in the week to last Tuesday, hiked their net long position in New York futures and options in the fibre by nearly 7,800 lots to 49.319 contacts.

Prices of many other agricultural commodities are closely tied with that of Brazil's real Brazil being the biggest producer and exporter of the likes of arabica coffee, sugar and orange juice.

As the real weakens, dollar prices for these crops become more attractive to Brazilian producers, encouraging selling.

And the real has indeed felt some weakness from the emerging market currency rout of the last week, if not nearly as much as the peso in neighbouring Argentina.

'Emerging market risk'

Nick Penney, senior trader at Sucden Financial noted that for sugar, besides ideas of another global oversupply in 2013-14, "what may also affect the market is the macro situation, affected by the current peso devaluation crisis in Argentina which has sharpened attention on emerging market risk".

Brazil's real, and the rupee in India, the second-ranked producing country, "may be buffeted by this and any fall in local currencies against the dollar in producing countries adds to the potential selling pressure on sugar and other dollar denominated commodities".

Sure, the latest round of twice-a-month data from industry group Unica on cane processing in Brazil's key Centre South region showed the usual seasonal slowdown taking hold, with sugar output slowing to a crawl (8,260 tonnes in the first half of this month).

But against a real falling 1.0% to its weakest close since August, it was tricky for sugar futures, which closed down 2.1% at 14.80 cents a pound for March, the weakest finish for a spot contract since June 2009.

That was better for hedge funds, which have been increasing their net short position in sugar for nearly three months.

Orange juice ended down 2.7% at 139.20 cents a pound in New York for March delivery, while arabica coffee for March fell 0.5% to 113.85 cents a pound.

Export concerns

In Chicago, wheat for March fell too, by 0.3% to $5.65 a bushel, although or reason linked to the US rather than Brazil.

US exports last week, as measured by cargo inspections, fell by 120,000 bushels to 14.0m bushels, coming in at the lower end of market expectations, and exacerbating concerns over a slowdown in shipments.

That took the shine off signs of positive world demand, after Saudi Arabia purchased 715,000 tonnes of wheat, from origins including North America, South America and Australia.

The latest tender by Egypt's Gasc authority came after the close of US markets.

'Another blast of freezing Arctic air'

It also offset concerns over US cold.

"Winterkill may affect wheat in northern Missouri and parts of Illinois tonight after a warm weekend thawed snow cover," CHS Hedging said.

US Commodities said: "Another blast of freezing Arctic air is coming this week, with snow and sleet reaching parts of southeast Texas.

"Colder weather may damage as much as 25% of the Midwest crop and 10% of plants in the Great Plains unprotected by snow cover."

Wheat vs corn

As an extra depressant, India estimated that its farmers had planted a record 31.48m hectares with wheat, up from 29.61m hectares last year, and spurring ideas that production will hit an all-time high, potentially of 100m tonnes, this year.

While, as CHS Hedging noted earlier in the day, "nearby Chicago wheat is at its lowest value relative to corn in more than a year," that did not prevent the premium shrinking further.

Chicago corn for March ended up 0.5% at $4.31 a bushel, supported in part by a strong cash market, a function of weather upsets.

"The corn market is supported by slow movement in the Corn Belt as the cold temperatures continue to slow interest in selling cash corn," Darrell Holaday at Country Futures said.

But US weekly corn export sales were decent too, at 28.7m bushels, if down 1.1m bushels week on week.

And technical factors were supportive, with the March contract now above its 10-day, 20-day and 50-day moving averages, and not far below its 75-day, which it has not closed over in seven months.

'Basis is firming'

For soybeans, the signal from the US cash market is not so good, undermined by concerns that Chinese exporters are about to switch orders to South America, now Brazil's harvest is ramping up, and apparently producing good results.

"Corn basis is firming as farmers are holding supplies and soybean basis slumps as demand is expected to be moving to South America," US Commodities said.

Indeed, latest weather outlooks appear only to have reassured investors over South American production prospects.

"Weather has cooled off in South America. After a very warm weekend, cooler temperatures and rain events are expected for Argentina throughout the week," CHS said.

Darrell Holaday at Country Futures said: "The time for a drought in the major areas of Brazil and Argentina," which would provide major support to prices, "is quickly running out."

Strong exports

However, if potential Chinese cancellations represent a threat to US soybean trade, they are not hitting home yet.

US soybean exports last week were strong, at 73.8m bushels, up from 56.6m bushels the previous week.

Soybeans for March ended up 0.2% at $12.87 a bushel.

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