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Evening markets: rains dampen coffee prices, wheat too

The first day of spring, for the northern hemisphere, didn't provide too much bounce for agricultural commodities.

Indeed, the session was notable for its price losses, spurred by the removal of weather premium, perhaps fitting given the end of winter, and the renewed strength in the dollar.

As investors continue to read the runes of the Federal Reserve's first monetary policy statement, and subsequent press conference, since Janet Yellen took charge as chair of the US central bank.

One of the most seized-upon comments Ms Yellen made, to journalists, was that the time lag between the conclusion of the Fed's quantitative easing programme and the first interest rate rise would be "something on the order of around six months".

That could potentially be April next year, earlier than many analysts have expected, and prompted strength in the dollar, up 1.0% against a basket of currencies over the last two days, quite a significant move in forex terms.

'Warmer and wetter pattern'

Many agricultural commodities were in the last session able to ignore the rise in the dollar – which, in making dollar-denominated assets such as commodities more expensive as exports undermines demand.

Wheat, for instance, had protection then from concerns over the dryness afflicting US winter wheat, with concerns over a dearth of rain in Australia, eastern Europe and Ukraine too.

However, the weather shield softened on Thursday with prospects of rain for some needy parts of the US.

Darrell Holaday at Country Futures noted that the GFS weather was pointing to "a warmer and wetter pattern with significant moisture moving through the Plains and Midwest from April 1-4".

And, while Toepfer and Strategie Grains added to the, still low level, fears over European dryness, MDA flagged the potential for much-wanted rain in eastern Australia next week.

'Taken a breather'

As for the Ukraine crisis, "tension in Crimea appears to be easing which is perhaps offering a little resistance to the grains", Benson Quinn Commodities said.

Chicago wheat futures for May, having touched $7.23 ½ a bushel earlier, the highest for a spot contract since April last year, ended at $7.03 ¾ a bushel a fall of 1.7% on the day.

"The market has taken a breather this afternoon, after good recent gains traders have sold some wheat to book profits," traders at a major European commodities house said.

In Europe itself, Paris wheat for May fell 0.9% to E211.25 a tonne, while London wheat for May hit £172.05 a tonne, an eight-month high for a nearest-but-one contract, only end at £168.95 a tonne, a drop of 0.6%.

'Forecasts for a lot of rain'

Still, these losses were dwarfed by the setback in arabica coffee, which continued its correction from two-year highs as recent rains in Brazil's coffee belt, and forecasts for more, diminish concerns over the setback to crops from drought.

Jack Scoville at Price Futures highlighted "speculative long liquidation due to short-term chart trend changes and also on forecasts for a lot of rain to appear in Brazil coffee areas in the next few days.

"Current forecasts for Brazil still call for rain this weekend. The rains could provide further stability for production after the very dry January and February."

Some rainfall has already been reported this month, "which has helped the trees support the current production a little bit", Mr Scoville said.

'Possibility of production losses'

MDA noted that rains in Brazil "through Monday… should favour" states including Minas Gerais, the top coffee producing state, and Sao Paulo, responsible for about half the country's cane production.

"Amounts will be 0.25-1.5 inches, locally 3 inches," the weather service said.

Societe Generale, forecasting prices retreating close to 150 cents a pound, estimated the Brazilian coffee crop at 50.9m bags, well below figures around 60m bags that were floating around, but above recent figures beginning with a 4.

Arabica coffee for May plunged 6.1% to close at 174.15 cents a pound, taking its losses so far this week above 12%.

Robusta coffee proved a little more resilient in dropping 2.5% to $2,037 a tonne in London for May, down 6.3% for the week.

"London stays supported by potential drought conditions in Vietnam," the major producer of robusta beans, where the main Central Highlands growing region is suffering a shortfall of rain, "and the possibility of production losses for the next crop," Mr Scoville said.

'Big boost to crops'

The fall in coffee, and prospect of Brazilian rains, was hardly helpful for raw sugar either, given that both have been supported by the country's drought.

"The weather in Brazil remains important," Mr Scoville said, noting that, this weekend, "private forecasts imply that quite a bit of rain will be possible, to provide a big boost to crops".

Furthermore, the sugar market "still has plenty of product. Brazil might have less sugar, but there still seems to be enough in the market from Thailand and the demand side does not seem strong".

The strength of Thai supplies was also highlighted by Societe Generale, which in a quarterly report remained somewhat bullish on sugar prices, if not quite as upbeat as previously.

'Just piecemeal buying'

Sucden Financial also highlighted the ampleness of supplies, saying that "chat around the trade seems to be concerned with bulging stocks in certain origins", with rumours of "some destinations selling back to their suppliers".

 There is a "general sense of just piecemeal buying/offtake on the horizon", the broker said.

Not all bulls have left the building, with Commerzbank noting that, with some damage to Brazilian cane from drought irreversible, and some disappointment over India's sugar output, "the supply situation on the global sugar market is thus tightening slightly".

"[This] justifies the higher price level," the bank said, forecasting that "in the medium term, the price should also rise above the 18 cents-a-pound mark again".

Raw sugar for May closed down 1.6% at 17.05 cents a pound, while May white sugar ended down 1.2% at $454.00 a tonne in London.

Chinese import concerns

Back in Chicago, corn fell too, feeling pressure from tumbling wheat and stronger dollar, with strong US exports having been a big support to prices, countering the huge weight on values from last year's record American harvest.

(Weekly US corn export sales were a decent 745,800 tonnes.)

As negative news on exports ahead, Cofco, the Chinese state-owned grain trading giant, said that the country's corn imports may fall below 3m tonnes in 2013-14, diminished by the rejection since November of several US cargos containing an unapproved genetically modified variety.

The US Department of Agriculture has forecast Chinese imports at 5.0m tonnes.

Corn for May fell 1.8% to $4.78 ½ a bushel, ending just above its 200-day and 20-day moving averages.

'Trying to get out of contracts'

But of course the major Chinese import fears concern soybeans, and whether and when the country will start cancelling orders from the US in earnest, with talk of weak Chinese crushing margins, ample supplies already in port, and purchases cheaper from Brazil.

In fact, "there is more discussion of China trying to wash out of double-digit cargoes of US and Brazilian soybeans," Country Futures' Darrell Holaday said.

"There is even some talk of [US] crushers trying to get out of some contracts."

And some of these soybeans appear to be heading to the US.

Allendale said that "the news in soybeans would be considered negative under most circumstances," not that "several cargoes of soybeans have been loaded in Brazil and on their way to the US.

"There has been confirmation of five and rumours of as many as seven more switched from China to the US.

Export sales keep coming

And while the USDA's Brasilia bureau cut its forecast for the Brazilian soybean crop overnight, at 88.0m tonnes, the estimate remains above those of many other commentators, and next year's crop was pegged at a might 97m tonnes.

Still, it was difficult for investors to be too hard on soybeans when weekly US export sales data came in at a positive 202,200 tonnes for old crop, as well as 437,500 tonnes of new.

That took to 44.4m tonnes the amount of soybeans the US has exported, or committed to export, in 2013-14 - 2.8m tonnes more than the USDA has forecast for the whole season, of which we are now only a little over half way through.

Soybeans for May closed up 0.2% at $14.33 ¾ a bushel.

Big meal deals

The oilseed was also supported by a 1.0% rise to $446.50 a short ton in Chicago soymeal futures for May, with the feed ingredient itself gaining support from export data.

The USDA revealed weekly export sales of 242,900 tonnes for 2013-14, "up 52% from the previous week and 32% from the prior four-week average", and a further 244,000 tonnes for next season.

These figures were well ahead of expectations.

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