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Dollar retreat helps crops overcome Dubai fears

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Three d words dominated trade on Friday – Dubai, debt and the dollar. And the greenback's retreat from day highs, as concerns about Dubai's debt problems waned a touch, helped crops stage a remarkable recovery.

There was some fundamental news knocking around, beyond Thursday's International Grains Council report, which raised forecasts for global wheat production in 2009-10, but cut estimates for corn.

The Buenos Aires Grain Exchange trimmed its forecast for Argentina's wheat crop by 225,000 tonnes to 7.5m tonnes.

US weekly exports data were in the main good. Especially for soybeans, where sales hit 1.14m tonnes and actual exports reached 2.44m tonnes, a high for the marketing year which started in September.

EU vs GM

Then there were rumours that the European Union was about to take a big step towards easing the clampdown on genetically modified foods which has led to a big drop in imports from the US.

With Europe taking issue with even tiny traces of GM crops that it has not approved, shippers have been running scared.

And China has returned to the fray too, with traders not sure how serious the country really is about having enough soybeans to last it until March. China is the world's biggest soybean importer, and has been a huge prop to Chicago prices.

'Contained or systemic?'

Still, what markets wanted to hear about was Dubai, and how serious its debt problem was.

The initial outlook was bleak, with crops falling hard in overnight trade, following stocks and oil downward while the dollar, that barometer of risk appetite, soared.

"The potential default by Dubai could cause financial stress on world banks," US Commodities, the Iowa broker, said early in the day.

"The question is: 'Is this a contained financial situation or systemic?'"

The answer coming from external markets increasingly was a modestly reassuring one, with European shares recovering some ground lost on Thursday, when the Dubai story hit home, and Wall Street stocks reopening from a Thanksgiving holiday in better spirit than many had foreseen.

Oil had trimmed its losses to 2.5% by 19:15 GMT, recovering to nearly $76 a barrel from $72.39 earlier, and the dollar gave back ground.

A euro was worth $1.4953, more than 1 cent more than earlier in the day.

Fighting finish

Prices of US crops moved, as might be expected, contrary to the dollar, which as it weakens makes exports such as food commodities cheaper to foreign buyers.

Chicago wheat for December ended down only 1.5 cents at $5.48 ¾ a bushel, having touched $5.30 ½ a bushel earlier.

Soybeans recovered from $10.21 a bushel to end at $10.53 a bushel, also down 1.5 cents, so close to retaining their record for rising the day after Thanksgiving.

Corn made it back into positive territory, ending up 5.25 cents at $3.97 ¼ a bushel.

"The only thing missing from this recovery is volume, which is very slow due to the semi-holiday nature of today's market, with an early close," Vic Lespinasse, at said, noting that even before the close funds were estimated buyers of 7,000 corn contracts.

Christmas comes early...

The revival came early enough to help European grains off day lows too, with London feed wheat for January ending down £0.35 at £107.25 a tonne, having touched £107.00 earlier, and its Paris milling running mate closing E0.25 higher at E131.25 a tonne.

While UK wheat has been protected this week by softer sterling, the pricing differential above is nonetheless the kind of thing milling grade grain needs, apparently, to improve its competitiveness.

"UK soft and low grade milling wheat is failing to win any sales to Spain as its place is taken by French wheat, much of which is trucked straight to the mill at a very much lower cost that shipping from our ports," Hugh Schryver, at Glencore's UK grain arm, said.

For feed wheat, there is a different issue.

"UK feed wheat is just about competitive into Spanish destinations. The principal problem is a lack of buyers and it is thought that many Spanish consumers will now shut up shop until after Christmas."

Sugar up, beans down

Moving on to softs, sugar followed the same pattern as Chicago grains, recovering strongly from early weakness.

New York sugar in fact ended 2% higher for March delivery, at 22.77 cents a pound, with London white sugar closing up $10.00 at $618.40 a tonne.

"It is almost impossible to posit that the momentum [in sugar] could be anywhere but upwards over the next six months," a report from Barclays Capital said, in a somewhat more bullish tone than Commonwealth Bank of Australia's latest musings.

BarCap forecast sugar hitting 24.5 cents a pound for the first half of 2010.

But the beans - cocoa and coffee - revived but not by enough to make it back into positive territory. March cocoa ended down 1.5% at $3,272 a tonne in New York.


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