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PM markets: Brazil dryness fears lift coffee. But sugar dips

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If some headline price falls, in the likes of cotton and corn, stole the market headlines on Tuesday, declines were not compulsory.

Indeed, even within ag classes there were splits, with Chicago

soyoil

, for instance, recovering early losses to close up 0.2% at 35.19 cents a pound for December delivery, and defying a dip in values of soybeans themselves.

The gain reflected a downgrade of more than 300m pounds, to 1.76bn pounds, in the forecast for US inventories of the vegetable oil at the close of 2017-18, reflecting in part a reduced idea of stocks heading into the crop year, but also the knock-on effect of US levies on imports of Argentine and Indonesian biodiesel.

(Biodiesel is made from vegetable oils such as soyoil.)

More expensive oils

The USDA flagged the prospect of "higher use" in the US of soyoil for biodiesel production to support domestic supplies, "reflecting recently-imposed duties for imported biodiesel from Argentina and Indonesia".

The forecast for consumption of soyoil in US biodiesel plants was raised by 550m pounds to 7.00m pounds.

And this when vegetable oil markets were already firm, helped by Monday's lower-than-expected Malaysian

palm oil

inventory data.

Paris futures in

rapeseed

(an oil-heavy oilseed) closed up 0.7% at E363.50 a tonne for November delivery, helped too by the return in the euro below $1.20 (so reinvigorating the competitiveness of eurozone exports) and a cut by the USDA in its forecast for world output of the oilseed (including canola) in 2017-18 too

The downgrade of 550,000 tonnes to 70.59m tonnes was down to a cut in hopes for the Canadian canola crop, thanks to a lower acreage figure.

Wheat gains

Paris

wheat

made gains too, nudging 0.3% higher to E159.50 a tonne for December delivery, gain helped by the softer euro, but also by the recovery in Chicago prices, which actually gathered strength later on.

Chicago wheat for December closed up 1.7% at $4.42 a bushel as it freed itself from the downward pull of

corn

futures (which themselves pared losses to end down 1.7% at $3.51 ½ a bushel for December delivery) to trade on their own modestly enhanced merits in the Wasde.

The report trimmed the estimate for world wheat stocks a little more than investors had expected, although it has to be said that supplies are far from tight.

Bouncing beans

Meanwhile, in New York,

arabica coffee

futures for December jumped 2.4% to 135.05 cents a pound, their best close in nearly a month, and breaking above their 100-day moving average.

Besides the continued weakness in Brazilian coffee exports – which look like falling year on year this month too, despite an industry forecast of a 20% jump in volumes from August – the country's 2018 crop prospects are coming under increasing scrutiny, thanks to the return of dry weather,

In Brazil, "moisture will continue to decline in central and northern areas," said MDA, with this region including the main coffee-producing state of Minas Gerais (also the top grower of first0crop corn).

And this matter when coffee plants are blossoming, and require follow-up rains for fertilized flowers to set fruit.

'Not able to withstand stress'

At US broker Price Futures, Jack Scoville said that while Brazilian coffee flowering has got "off to a very good start", helped by earlier rains, "coffee areas are dry again.

"Some producers are worried that the rains came too early and created premature flowering," with blossoms potentially dropping and curbing yield potential.

"There is also talk that the trees are old and not able to withstand stress and that lower production should be expected no matter what happens."

In the London market for

robusta coffee

- for which dryness worries are not so acute in major Brazilian growing areas, and for which supply hopes are being underpinned by Vietnam - November futures added a more modest 0.9% to $1,969 a tonne.

"Prospects for the upcoming Vietnamese crop seem positive," the International Coffee Organization said, Vietnam being the top robusta grower.

Sugar defies output tumble

However, New York

raw sugar

for October dropped 1.5% to 14.07 cents a pound, defying apparently bullish data from industry group Unica showing the production in Brazil's Centre South region in the second half of last month well below expectations.

Commentators had expected the data to show Centre South sugar output during the period at 2.82m tonnes, according to a survey by S&P Global Platts.

In fact, the figure came in at 2.54m tonnes (down 20% on output in the first half of August, and a little lower year on year too).

The drop reflected a weaker-than-expected volume of cane crushed and, at 46.95%, a smaller proportion of the crop diverted to cane than the 48.13% figure forecast.

However, one worry for sugar bulls is the proximity of so-called ethanol parity, pegged at about 14.30 cents a pound, which would appear to offer some kind of ceiling for prices.

Heading too high would risk turning mills back towards making more sugar than ethanol, and lift further expectations for the world output surplus in 2017-18.

By Mike Verdin

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