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Evening markets: dollar decline injects, some, life into ags

It was a bit of a struggle, but agricultural commodities posted gains in the end, helped by the Federal Reserve's surprise decision to keep the spigots open on easy monetary policy.

The Fed, defying expectations that it would start to taper its third round of quantitative easing, said it was keeping asset buys at $85bn at month, adding that it would "await more evidence that progress will be sustained before adjusting the pace of its purchases".

"The tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labour market," the Fed said, and indeed lowered to 2.2%, from 2.5%, its forecast for US economic growth this year, trimming its 2014 estimate too, by 0.3 points to 3.0%.

The impact of the dovish statement was a jump in equities, with the S&P 500 equity index setting a record high, while bond prices soared.

Cotton leads

Signally for commodities, the dollar slumped by 1.1% against a basket of currencies, making dollar-denominated assets, including many raw materials, less expensive as exports.

Indeed, the CRB index added 1.0%. 

And cotton, which as an industrial rather than food commodity is more attuned to the macroeconomic climate, outperformed, adding 1.3% to 85.54 cents a pound in New York for December delivery.

The help from the Fed countered some softish news from China, which reported imports of the fibre down 9.7% last month at 276,000 tonnes, while restarting its controversial cotton stockpiling programme, which has been a big support to prices.

Still, purchases were only 780 tonnes, well below a daily target of more than 40,000 tonnes.

Arabica under pressure

Other agricultural commodities could not keep up with cotton, but at least for the most part managed to throw off some early malaise seen in many markets.

Raw sugar had looked on for a negative session -"it seems we will continue in yesterday's vein today and drip, drip lower," Sucden Financial said earlier but ended up 0.6% at 16.79 cents a pound.

Indeed, the real, to which sugar and arabica coffee prices are closely linked, being produced largely in Brazil, performed especially well against the dollar, rebounding more than 2%.

Arabica coffee, while recovering a little from an intraday and four-year low of 113.95 cents a pound for the December contract, at least managed to curtail its losses to 0.05 cents by the end, closing at 114.90 cents a pound.

"The ample supply situation also leads us to expect only a moderate price recovery in the medium term," Commerzbank said, highlighting US data showing that US stocks of unroasted coffee beans climbed 7.4% year-on-year in August to their highest level since July 2009.

One-month low

In Chicago, there was a big of a struggle to close higher too, with all three of the major contracts corn, soybeans and wheat posting losses at some stage.

Corn, indeed, for December hit a one-month low of $4.52 a bushel.

But with the dollar sliding, bulls, which did have some fundamental cause to press for higher prices, gained a bit more traction.

One factor in support of corn prices, besides ideas stoked by Tuesday's Farm Service Agency data that US plantings may have fallen up to 3m acres below current estimates, is that values are already pretty low.

Most of the hard done

"Despite the fact that we continue to be bearish corn in the long term in the current crop year, we feel the December contract will be well supported in the $4.35-4.45-a-bushel area," Darrell Holaday at Country Futures said.

"We continue to be concerned about the ultimate downside potential in corn in this crop year, but we do feel the largest amount of down move in December corn before the end of the calendar year is in place."

Sure, US weekly ethanol production data, down 10,000 barrels a day at 838,000 barrels a day last week, was not great.

And Lanworth nudged higher its forecast for the US crop by 87m bushels to 13.483bn bushels.

But corn for December nonetheless managed to end up 0.5% at $4.56 a bushel.

Export orders

Soybeans received a boost from a large order by China of US crop, of 1.93m tonnes, as announced through the US Department of Agriculture's daily alerts system, with a further 182,000 tonnes down to "unknown" destination.

This following an upgrade by Standard Chartered to its forecast for soybean prices, citing the prospect of strong demand from China, to feed the country's growing hog herd.

There is some concern about South American sowings too, given dryness in major central Brazilian growing regions.

"It is still early in South America, but there is some concern about dry conditions across Mato Grosso in Brazil and Argentina, with no relief likely until early October," Richard Feltes at RJ O'Brien said.

'Too hot and dry'

At Soybean and Corn Advisor, respected crop scout Michael Cordonnier said: "Even though farmers can now start planting their soybeans, the conditions are too hot and dry in most of central Brazil for any significant planting activity."

While the first soybeans in Brazil are usually planted in the state of Mato Grosso by now "the first significant rains of the new growing season have not yet arrived", he said.

"Farmers like to wait until they have received 2-3 inches of precipitation before they start planting to insure adequate soil moisture for germination and stand establishment."

'Wild inflation'

And also from Brazil, there was a report that the soybean crush had fallen to its lowest level since 2009, despite the record harvest of 81.6m tonnes in 2012-13.

In the six months to the end of July, crushers processed 19.3m tonnes of soybeans, down from 20.8m tonnes from the same period of 2012.

The decline was blamed on weak margins, with processors unable to pass on fully high soybean prices, which Allendale said were being supported by farmer hoarding.

Allendale president Paul Georgy said: "A reason farmers are holding on to soybeans is because of the wild inflation in that country. It is better to hold hard assets than cash," although inflation is of course more of a problem in neighbouring Argentina.

Soybeans for November closed up 0.4% at $13.47 a bushel, their first positive close in four sessions, coming against, indeed, ideas of further rains in Midwest which will encourage some crop recovery.

'In an uptrend'

Wheat managed to keep up with corn, adding 0.5% to $6.46 a bushel  in Chicago for December delivery, helped by continued talk of a disappointing Russian harvest, on quality terms at least.

Indeed, the USDA said that France would follow Romania in taking a leading role in supplying shipments to Egypt, the top importer, a role which has typically been reserved for Russia, at least early in the season.

Technically, wheat is now "in an uptrend", US Commodities said in Chicago at least.

In Paris, the November contract edged 0.1% higher to E185.00 a tonne, restrained by a stronger euro, but London wheat eased 5p to £151.20 a tonne, weighed by data showing a strong start to 2013-14 for imports.

Laos in Paris, rapeseed, for which Australian officials have forecast a price recovery, revived from a one-month low to end unchanged at E369.00 a tonne.

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