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Evening markets: Argentine rains dampen grain price revival

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Farm commodities showed their independence from some other types of risk assets on Wednesday.

That meant losing ground, even while the likes of

shares

made headway.

Indeed, external signs might have been considered promising for crops, with the safe haven of the

dollar

weakening, so making dollar-denominated ones more appealing to buyers in other currencies.

And, in another sign of fear taking a back seat to greed, the

Vix

index – investors' so-called gauge of fear – shed dropped 4%.

Sugar rally

Orange juice

managed to end higher, by 3.7% at 191.20 cents a pound for New York's March contract, as investors awaited tests by the US Food and Drug Administration on Brazilian imports for the banned fungicide carbendazim.

A finding of the pesticide in sufficient quantities would prompt a ban on the imports from Brazil, the top orange juice exporter, that the US needs to top up its own production and meet domestic demand.

And raw

sugar

managed some gains, amid talk of short-covering. New York's March contract added 0.6% to 24.00 cents a pound.

Furthermore, the rally in London white sugar, initially seen as prompted by a European Union decision to back track on imports of raws, is beginning to look momentous, with the March lot recording a ninth successive gain, this time by 0.4% to $630.60 a tonne.

La Nina fading?

However, the grains found headway difficult to come by.

Not least thanks to the latest twists in the South American weather forecast which have continued to prove such an influence on prices, given the threat that persistent dryness has posed to output in Argentina and southern Brazil.

Australia weather forecaster said that the La Nina weather pattern, on which South American dryness has been blamed, had shown signs of weakening in the last two weeks.

And, coincidence or not, forecasters noted somewhat more moisture in forecasts.

'Improvement to topsoil moisture'

Rains expected to enter eastern and northern Argentina early next week are seen moving "slower than what the models showed earlier", weather service WxRisk.com said.

"And because the event takes longer to move though, more rain falls."

At rival World Weather, Drew Lerner said that rains forecast for Argentina "should be sufficient to slow or stop the declining moisture trend and offer a short-term improvement to topsoil moisture once again".

While dry weather will resume in the country, in southern Brazil, "the bottom line calls for no prolonged period of dry weather".

Acreage fears

As an extra setback to

corn

, which is particularly reliant on biofuels plants for demand, the International Energy Agency said that world oil demand fell in the last three months of 2011 for the first time since 2009, during the world financial crisis.

Brent

crude

itself eased 0.6% below $111 a barrel, pressing those squeezed margins that Benson Quinn Commodities identified earlier.

Furthermore, there are growing concerns for a huge jump in corn acres provoked by prices which remain elevated, by historical standards - and still at a premium in Chicago to wheat, after all.

"The fear in the US is that corn acres balloon to 97m-98m acres," US Commodities said, implying a jump if some 6m acres year on year.

"It is now estimated that former Soviet Union corn acres will expand up to 5m acres" too.

'Market will represent value'

The news was not all bad for the grain, with Egypt buying 120,000 tonnes of it from the US, as reported through the US Department of Agriculture's daily briefing system.

And this following some South Korean purchases overnight.

But while "there has been some increase in export activity, we need to see more to establish a low", Darrell Holaday at Country Futures said, forecasting a drop to $5.85 a bushel in Chicago prices.

"At that level, we feel the market will represent value and buying will surface in that area.

The March contract ended down 1.7% at $5.93 ½ a bushel, pretty near its intraday low.

Chinese purchases?

For

soybeans

too, which stand to benefit particularly from South American rain, prospects hardly looked positive.

But talk of Chinese buying fostered a revival in the oilseed, with prices in the country itself hitting the equivalent of $18 a bushel overnight, on US Commodities calculations.

Benson Quinn Commodities said: "It appears the window to do some soybean business with the Chinese is opening up.

After all, "there are some concerns about the ability of Brazilian export points to get their hands on the early harvest", Brazil being the second-ranked exporter.

"South American basis levels are firming."

Soybeans for March ended unchanged at $11.83 ½ a bushel, and up more than 10 cents on their day low.

'Moisture in the southern Plains'

Wheat

had no such luck with a rebound, closing down 2.1% at $5.92 ¼ a bushel in Chicago for March delivery, reopening its discount against corn.

As Mr Holaday said, "wheat remains under pressure because the world fundamentals remain negative and when corn is lower, wheat has a hard time finding a bid"

.

Furthermore, there are forecasts "of moisture in the southern Plains next week and that is also pressuring wheat today".

And a record harvest in Western Australia, Australia's top grain producing state, boosted hopes for the national crop too.

The weakness spread across the Atlantic to Paris, where March wheat ended down 1.3% at E197.50 a tonne, and London, where the best-traded May lot lost 0.5% to £156.50 a tonne.

By Agrimoney.com

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