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Evening markets: Argentine heat stokes grain market rally

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For the third successive week, grains started strongly – as South America weather concerns were again realised.

Can they end strongly too, unlike last week? That may depend on the outcome of the US Department of Agriculture's monthly Wasde report, which looks set to increasinly dominate the period.

Still, for Monday investors found that not only was the weekend hotter in Argentina than had been thought, with Benson Quinn Commodities highlighting "extreme high temperatures" of up to 108 degrees Fahrenheit – a setback for pollinating



But also, the rain forecast for early this week was downgraded.

"The forecast for the week turned drier in Argentina and that has prompted the strength" in Chicago prices, Darrell Holaday at Country Futures said.

And warmer weather is set to follow, with the European weather model run "suggesting a high pressure ridge moving back in across Argentina later this week", Paul Georgy at rival broker Allendale said.

'Potentially 30-40% reseedings'

Besides, it is not as if the Argentina-southern Brazil-Paraguay heat and dryness is the only weather issue in town.

"Rumblings continue to grow on Ukrainian conditions, with 40% of the crop in poor condition, and most of the western former Soviet Union in very poor moisture conditions," Scott Briggs at Australia & New Zealand Bank in London said, noting that "potentially 30-40% reseedings [will be] needed".

In northern North America, unusual heat and dryness are rattling nerves too.

"More attention being paid to the fact that it is has been very dry in Nebraska, northern Iowa, North and South Dakota and Minnesota," Country Futures' Mr Holaday said.

The problem is not just that this could mean inadequate moisture in the soil come spring, but that autumn-sown crops will be vulnerable to winterkill should cold temperatures arrive - as says they will later in the month.

"A strong arctic front will sweep for the Plains, the Midwest and the east coast and drop in some rather cold air," the key question being whether it brings snow cover to protect crops from frost.

Chinese buying?

It was actually


, which like corn is threatened by South American weather, which led Monday's charge, soaring 3.1% to $12.33 a bushel.

The oilseed got a little extra help from a confirmed order of 145,000 tonnes of US soybeans, booked for "unknown" destination, and talk of further sales as buyers switch from South American supplies.

"The trade is talking that China may have bought five-to-six cargoes of US soybeans for February/March shipment last week," Benson Quinn said.

Corn for March closed up 1.6% at $6.52 a bushel, after cracking its 100-day moving average, at $6.61 a bushel, only to find it could not hold this level, so disappointing bulls on a technical basis.

Chicago vs Minneapolis

Chicago wheat actually did better, adding 2.7% to $6.41 ¾ a bushel for March, so closing its atypical discount to corn a little, helped by the Ukraine and North America weather concerns, besides ideas that index funds may be about to buy a wodge of the grain.

The annual index fund rebalancing process - in which they reweight their portfolios back to mandated levels, meaning selling top 2011 performers and selling laggards – will see major funds buy more than 27,000 Chicago wheat contracts, Morgan Stanley said.

Furthermore, the grain is being helped in Chicago by short-covering, amid an unwinding of spreads against long positions in Minneapolis wheat.

The Minneapolis March contract settled higher, but by a more modest 1.1% at $8.09 ¾ a bushel.

Cocoa rebound

Wheat fared best of all in Paris, where the March lot ended up 3.1% at E201.25 a tonne, boosted by the grain's greater competitiveness on export markets, besides strength in Chicago.

London wheat for May closed up 2.0% at £155.50 a tonne.

But these gains were not a patch in what was achieved among soft commodities by


, which soared 7.0% to £1,428 a tonne in London, for March delivery, and up the same at $2,170 a tonne in New York.

The jump was attributed to a scramble by speculators to cover short positions, after regulatory data showed cocoa bucking the trend of a tilt towards greater long positions in the latest week.

Furthermore, there was talk of slowing arrivals of cocoa from farms to Ivory Coast ports, stocking concerns lodged by Olam International that a firm start to deliveries was largely down to crop carried over from the previous year.

'Fundamentals are bullish'

Many other soft commodities closed little changed, although London robusta


recovered from 14-month lows to finish up 2.3% at $1,763 a tonne for March delivery, as investors paused to think whether relatively lowly levels are justified when fundamentals for arabica coffee appear firm.

"Coffee's fundamentals are bullish early in 2012 due to weather-related problems in major washed-arabica producer Colombia, which have led to reduced crop forecasts," Lynette Tan at Phillip Futures said.


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