PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:29 GMT, Wednesday, 5th Mar 2014, by Agrimoney.com
Evening markets: coffee soars above $2. Can it stay there?

Anyone for tea?

Coffee is certainly becoming an increasingly expensive alternative for consumers, soaring 9.1% in New York on Wednesday, for May delivery, to take its gains for 2014 to 79%.

(Single shots all round?)

The close of 202.40 cents a pound for the May arabica coffee contract was the first close for a nearest-but-one contract above 200 cents a pound for exactly two years.

Damage estimates grow

The rise came amid a continued decline in estimates for the Brazilian harvest this year, with importer Wolthers Douque pegging it at 47.7m bags "at best" because of drought in the country's coffee belt.

(Before the drought, estimates for the harvest were at 60m bags, or thereabouts, and many commentators have been sticking with figures above 50m bags.)

And US-based Wolthers Douque came up with one of the first figures for next season too – 40m-42m bags –as the stunted growth of branches which will flower around September, and bear next year's coffee cherries, reduces prospects for that harvest too.

Rain, but how much?

This when damage from dryness may not be over yet.

Although weather service MDA did forecast rains this weekend in parts of Brazil including south western Minas Gerais, Brazil's top coffee growing state, "it is unclear if the showers will do much good", Jack Scoville at Price Futures Group said.

Besides, MDA, in a longer-term forecast, predicted that "below normal precipitation" will continue in parts of Brazil including Minas Gerais this month.

As an extra help to bulls, they faced less pressure from producer sales, with Brazil in carnival mode and "producers in other countries are not actively selling", Mr Scoville said.

Robusta coffee underperforms

This includes in Vietnam, the top grower of robusta beans, from where exports so far this year "have been disappointing", he said.

"Wire reports suggest that offers from Vietnam have been better to start this month as well. The market needs that coffee to be exported to help fill the vacuum left by the poor production in Brazil."

In fact, it was signal that robusta coffee indeed underperformed its peer, falling 0.6% to $2,065 a tonne in London for May delivery.

Will arabica follow suit on Thursday, when Brazilian offices reopen after Carnival?

Four month high

The same goes for raw sugar, which soared 2.8% to 18.23 cents a pound in New York for May delivery, the best close for a spot contract in four months.

Again the sweetener has been helped by Brazilian drought concerns.

As was orange juice, which built on 4% gains in the last session, closing up 1.5% at 153.20 cents a pound for May delivery, the best close for a nearest-but-one contract since April 2012.

Juice is also being supported by fears over levels of greening disease, a debilitating bacterial infection of citrus trees.

External markets

There was no way grains were going to match these kinds of gains, with concerns over the Ukraine crisis somewhat in retreat, thanks to talks between US and Russian foreign ministers in Paris.

While shares had a weak day, that was attributed to some soft US data, with ADP, a private US payroll processor, estimating at 139,000 the number of jobs created last month, below market expectations.

Separately, the Institute of Supply Management's index of non-manufacturing activity fell to a four-year low of 51.6 last month, from 54.0 in January.

Brent crude, which was sent soaring on Monday by concerns over Russian oil supplies, dropped 1.4% below $108 a barrel.

Drought damage

Still, grains did better than that, with some residual concerns around about the impact of Ukraine's turmoil on exports, as farmers hoard crops as a hedge against a falling hryvnia, and on spring sowings, if farmers can't get the liquidity to pay for seed and fertilizer.

Furthermore, dryness is adding to Ukraine farmers' woes, with Lanworth cutting its forecast for the country's wheat harvest this year, citing rains 50-55% below normal last month.

And in the dryness remains a problem too for winter wheat seedlings.

Richard Feltes at RJ O'Brien highlighted forecast for "only light precipitation across the central Plains over next week, while Texas and Oklahoma stay dry," and Commodity Weather Group is forecast further dry weather for the hard red winter wheat belt in the second half of March.

Ethanol output falls

OK the news for grains was not all so positive, with the European Commission underlining decent prospects for the European Union harvest, the world's biggest.

Meanwhile, corn ethanol production data was weak, down 11,000 barrels a day to 894,000 barrels a day, although there were some generous interpretations around about that, with US cold seen disrupting biofuel plants.

(Signally, US ethanol stocks fell too, by 413,000 barrels to 16.61m barrels, indicating that consumption is higher than output, and not at a strong time of year for ethanol demand either.)

Furthermore, investors are expecting the US Department of Agriculture to lift slightly, by 7m bushels to 1.488bn bushels, its estimate for domestic corn stocks at the close of 2013-14, when monthly Wasde crop report is unveiled on Monday.

Fund buying

Still, one help for agricultural commodities across the piste is that they are back in favour with funds.

Mr Feltes noted that given "uncertainty" ahead of much-anticipated USDA stocks report at the end of the month, US sowings ahead, and a "possible shift in Black Sea demand to other origins, new fund longs have the wind at their back until developments prove otherwise".

Certainly wheat for May ended down only a modest 0.2% at $6.42 ½ a bushel in Chicago, ending above its 100-day moving average for a second successive session, for the first time since October.

Kansas City-traded hard red winter wheat for May eased only 1 cent to $7.08 ½ a bushel, being grown in the US Plains, with its dryness concerns, although that saw it fall just short of its 200-day moving average, for a second session.

In Paris, wheat for May managed gains, up E207.75 a tonne, helped by ideas of a reluctance among buyers to purchase from Ukraine.

'Good start'

Back in Chicago, corn for May dropped 0.4% to $4.84 ¼ a bushel.

It looked doubtful that soybeans would even manage to match that after the USDA revealed that Chinese buyers had cancelled orders totalling 245,000 tonnes of US soybeans, fulfilling long-held fears.

But is this enough to make a difference to an already-squeezed US soybean balance sheet?

"It's a good start, but we'll need more," Mr Feltes said.

In fact, traders expect the USDA in the Wasde to cut its estimate for domestic soybean stocks at the close of 2013-14 by 9m bushels to a wafer-thin 141m bushels.

And, with hopes for South American crops on the wane, soybeans for May ended down only 0.2% at $14.20 ½ a bushel.

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