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Evening markets: soaring dollar adds to ag market woes

As if the usual round of strong US harvest talk was not enough for grain markets to deal with, there was the strong dollar too.

The greenback soared 1.2% against a basket of currencies to its highest since July last year, largely thanks to the unexpected rate cut by the European Central Bank, which sent the euro plunging, but also thanks to some solid US data.

The Institute of Supply Management's index of service sector activity hit a nine-year high.

"The latest US data suggest the economy is growing at a solid pace," said RIA Capital Markets.

Record crops

A stronger dollar undermines prices of dollar-denominated commodities by making them less affordable to buyers in other currencies.

Not that investors anyway needed much encouragement to sell Chicago grains and soybeans, with record US corn and soybean harvests looking ever more certain, and looming ever nearer.

"Weather has been near ideal for most areas, and it looks like we are going to get a good end to the growing season," said Don Roose, president of broker US Commodities.

For soybeans, benign weather means that "pod filling looks like it is going to be excellent".

"All this adds up to big yields," Mr Roose told

'Stellar early yields'

Indeed, the reports of large results from the early US harvest, in the south, remain strong.

"News of better-than-average yields in the south continue to come through the grapevine," CHS Hedging said.

At RJ O'Brien, Richard Feltes talked of "stellar early yield reports".

Mr Roose said: "The only question is whether the results from the south are going to translate to the north," and the big Corn Belt growing areas where harvest has yet to begin.

"Right now, you would say 'it is'."

Frost threat

As CHS Hedging noted, "an early frost to corn and soybeans is the only real threat on the horizon for damaging US crops.

"An early frost hitting the Corn Belt isn't greatly expected."

Sure, an early frost for the Canadian Prairies and US northern Plains "is likely - Canada has already seen some frost in parts of the Prairies".

Fintec Group said: "A couple of maps imply possible frost in northern Midwest and Canada Sept 12-14."

Canola contract low

However, investors showed what they thought of the Canadian frost risk by sending canola futures for November down 1.2% to Can$413.30 a tonne, a contract closing low.

Indeed, more pertinent was the boost to the competitiveness of rival rapeseed in Europe, the top producer and consumer, thanks to a 1.6% slump in the euro to its lowest levels against the dollar since July last year.

Rapeseed for November nudged E0.25 higher to E323.25 a tonne in Paris.

Prices fall

Back in Chicago, there was a smidgen of positive news for corn with news of a sale of 120,000 tonnes of US supplies to an "unknown" importer.

Weekly US ethanol data showed a rise of 8,000 barrels a day last week to 921,000 barrels a day in production, although the extent of demand for the biofuel was questioned by a 356,000-barrel jump to 17.67m barrels in inventories.

Chicago corn for December closed 1.6% lower at $3.46 a bushel, with selling further encouraged by the fall in the contract below $3.50 a bushel.

The little-traded September contract fell 1.6% to $3.35 a bushel, a fresh four-year closing low for a spot lot.

'Over-priced relative to grains'

Soybeans for November closed down 1.6% at $10.03  a bushel, a contract closing low, but with broad expectations that further losses are in order.

Thomas Mielke, head of influential analysis group Oil World said that futures could temporarily fall below $9.50 a bushel.

RJ O'Brien's Richard Feltes said that the soybean market is "still over-priced relative to grains.

"Look for December corn to find support near $3.30 a bushel until we know more about ear weights," in the US Department of Agriculture's Wasde crop report.

US soybean stocks forecasts are "edging toward 600m bushels, suggesting another $0.50-60 a-bushel break in November soybeans".

Russia grain spree

Nor could wheat futures find traction, with futures "under pressure as the Ukrainian situation cools-off", Paul Georgy at Allendale said.

With Ukraine, and Russia, both major exporters of competitively-priced wheat, the wheat market has been something of a barometer of regional tensions.

In fact, Russia added extra pressure with a further round of upbeat forecasts for the country's grains harvest, and exports.

Analysis group Ikar estimated 2014-15 Russian grain exports at 33.0m tonnes, including 23.0m tonnes of wheat, 4.5m tonnes of barley, and 4.3m tonnes of corn

(The USDA has its estimates at 22.5m tonnes for wheat, 3.5m tonnes for barley and 3.8m tonnes for corn.)

 Separately,  ProZerno estimated Russia's overall grain exports at 32.7m tonnes, including 23.5m tonnes of wheat, 3.6m tonnes of barley and 4.5m tonnes of corn.

'Improving outlook'

The concerns about the rain-hit US spring wheat harvest seem to be calming down too.

"The worst of the wet weather pattern" for US hard red spring wheat growing areas "is over", Mr Feltes said, flagging an "improving outlook for the spring wheat harvest".

Chicago wheat for December fell 1.0% to end at $5.30 a bushel, and even Paris wheat fell a touch despite support from a the weaker euro.

The Matif November contract ended down 0.2% at E170.75 a tonne.

Long-term impact

The soaring dollar was hardly positive for dollar-denominated soft commodities either, and raw sugar for October plunged 3.1% to 15.13 cents a pound in New York, a contract closing low.

The decline came despite a warning from Brazilian analysis group Datagro of a lasting impact from this year's drought on cane production in the key Centre South region.

"We continue to have a shortage of rainfall in Sao Paulo and when it doesn't rain, you can't plant cane," Plinio Nastari, the Datagro president, said.

"This drought will be seen not only in the yields and production of 2015 but also the 2016 crop."

The consultancy cut to 32.8m tonnes, from 33.2m tonnes, its forecast for Centre South sugar output this season, and forecast a further drop in cane yields next year, factoring in an ageing crop.

'Still in a downtrend'

Mr Nastari also forecast a world sugar production deficit of 2.45m tonnes for 2014-15.

However, he cautioned that large sugar stocks left over from four successive seasons of world production surplus would continue to weigh on values for now.

At Sucden Financial, Nick Penney added that sugar prices are "still in a downtrend even with some supply taken out of the equation.

"Without increased demand, October futures are likely to gravitate towards 15 cents a pound, especially with options expiry in two weeks."

Cotton for December fell 0.7% to 65.45 cents a pound in New York, but arabica coffee did a touch better after its declines already this week, ending up 0.1% at 202.45 cents a pound, proving reluctant to stay for too long below 200 cents a pound.

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