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Evening markets: soaring coffee, sugar steal grains' thunder

Don't waste your coffee beans– replacing them could get expensive.

It is always a tricky task knowing when price spikes such as the one being seen in New York-traded arabica coffee will end.

But it wasn't on Wednesday, anyway, when the May contract closed up 11.2% at 172.60 cents a pound, the best close in 16 months, and taking its gains so far this month to 36%.

'Gone crazy'

The cause remained worries over damage from Brazil's dry spell, which has hit the top coffee growing state of Minas Gerais particularly.

"The market for arabica coffee appears to have gone crazy," Commerzbank said.

"The ongoing drought in Brazil, the most important grower of coffee, is continuing to unsettle market players," the bank said, noting estimates of an 88% shortfall in rainfall in key coffee-growing regions over the past month.

"Drought and heat can cause the coffee cherries to fall from the trees before they are ripe.

"For the time being, pricing on the coffee market will hang on every word spoken by the meteorologists."

'A little too sceptical'

The buying spread into raw sugar too, with the major Brazilian cane state of Sao Paulo also affected badly by drought.

"The coffee market surge was also partly responsible for the sugar rally as weather reports are common to both," Sucden Financial's Nick Penney said.

After Unica on Monday ditched expectations of a rise in cane output in Brazil's Centre South district his year, Macquarie forecast a 10m-tonne decline.

Mr Penney said: "We are sure that other research organisations such as Datagro and Conab will come up with similar or perhaps even more bullish revisions to the Centre South cane crush," compared with the Unica foreast.

"It seems more insurance protection is being taken on weather risk, as is being reflected in the structure" of sugar derivatives markets.

"Drought and its effect creep up on markets as any coffee trader will tell us. Perhaps we sugar traders have been a little too sceptical on what is happening in Centre South Brazil."

Raw sugar for May gained 2.1% to 16.85 cents a pound, a two month closing high.

'Brutal winter'

Those kind of rises overshadowed most gains in grains, although oats in late deals closed up 5.1% at $4.13 ¾ a bushel in Chicago for May delivery, and 4.7% ahead at $4.48 ¾ a bushel for March.

The grain was supported by ideas of the return next week of chilly weather, again providing a hurdle to logistics, and the transport of oats from Canada to the US, which relies on its northern neighbour for nearly half its supplies of the grain.

But the main impact of the forecast of the return of cold weather was in boosting wheat, with concerns that frosts could mean more damage to seedlings which have, in some areas, struggled with the polar vortex and its kin.

Overnight, weekly official crop condition data for Texas, which unlike other states reports on a weekly basis even at this time of year, showed a one point decline in the proportion of winter wheat rated "good" or "excellent".

"Texas wheat is just 17% good-excellent due to brutal winter pushing deep into the south," CHS Hedging said.

'Charts turning up'

"Winter wheat will experience another cold snap, following a warm-up for the hard red winter wheat crop, supporting prices," said Benson Quinn Commodities.

US Commodities said: "Warmer temperatures this week that are likely to reduce some of the snow cover are expected to be followed by another wave of frigid conditions next week which has the potential to hurt crop ratings in the future."

Ideas from USDA staff that India may not prove such a force on export markets next season after all, despite a record harvest, were also a relief.

And as a further help, technical improved too as the March lot in Chicago pushed above it 75-day moving average for the first time in three months, to close up 1.4% at $6.20 ¼ a bushel.

"With the wheat charts turning up, the speculative shorts will be forced to cover more of their positions as the technicals turn against them," CHS said.

Kansas City-traded hard red winter wheat gained 1.0% to $6.92 ½ a bushel for March, topping its 100-day moving average for the first time in three months, and setting a two-month closing high.

Minneapolis spring wheat gained 0.7% to $6.84 a bushel, but this fell just short of the rise needed to bust through its 100-day moving average.

'Pushed through resistance'

Corn made ground too, closing up 1.2% at 4.53 ¾ a bushel for March, the best finish for a spot contract in four months, getting its own technical help from busting above the $4.50-a-bushel market which had been viewed as quite a psychological ceiling.  

"March corn has pushed through resistance on a quiet day of short covering and building fundamentals," CHS put it.

The improved fundamentals included concerns over the civil unrest in Ukraine, which CHS said "is causing some worry for unshipped corn", with the country an increasingly important exporter of the grain.

Furthermore, there are of course weather worries about Brazil to factor in, with corn particularly sensitive to heat and dryness in its pollination phase.

'Active sellers'

Of course, the higher prices have encouraged some sellers to sell up too.

In the US, "many producers have taken advantage of the warm front to take grain to market," CHS said

US Commodities said that US farmers were "active sellers in both soybeans and corn on yesterday's rally", with South American growers cashing in too.

"Producer pricing in Brazil has been steady and even the Argentine farmer is said to have been more aggressive to market soybeans late last week and again yesterday."

However, it was the oilseed which felt the pressure more, with hedge funds already having, unlike in corn, a large net long position on which to take profits.

Indeed, there was talk of unwinding of long soybean-short corn spreads as the grain bust up above $4.50 a bushel.

Soybeans for March dropped 0.5% to $13.54 ¼ a bushel, with the better-traded May contract slipping 0.4% to $13.42 a bushel.

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