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Evening markets: Belgian downgrade spikes crop price rally

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Downgrades, like other troubles, seem to come in threes.

Investors had managed to get their head around cuts to Portugal and Hungarian credit ratings, helping many risk assets, including many agricultural commodities, stand in positive territory.

Broker US Commodities had looked prescient in warning that "grains are beginning to be deeply oversold.

"Be nimble here as a dead cat bounce may emerge," such as rally being based on the idea that even a dead moggie will rebound if dropped from sufficient height.

'Very, very weak close'

But that was before Belgium saw its debt rating cut too, by Standard & Poor's, from AA+ to AA, with a negative outlook, implying that a further downgrade may be on its way.

The result? Scott Briggs at Australia & New Zealand Bank related how the expiry of December options as well as Thanksgiving "meant a pretty quiet market most of the day, until right on the close as news that Belgium's debt rating was being cut sent equities down and dragged the grains with them".

It was a "very, very weak close", he added.

Lower and lower

The casualty list looked like this.

In Chicago

, wheat

closed down 0.8% at $5.74 ½ a bushel for December, the lowest finish for a spot contract since mid-July 2010, in the early days of the rally. The better-traded March lot fell 0.9% to $5.98 a bushel.


for December ended down 1.1% at $5.82 ½ a bushel for December, the weakest close for a near-term contract of 2011.


dropped 1.4% to a fresh 13-month ending low of $11.06 ½ a bushel.

Among soft commodities, New York raw


for March closed down 0.8% at a five-month closing low of 22.90 cents a pound, and


for the same month ended down 1.0% at $2,381 a tonne, the weakest for a second-in lot since May 2009.

"Cocoa farmgate prices in Ivory Coast's principal growing regions fell last week, weighed by abundant supply and a decline of port prices driven by fears over slowing demand in Europe," Lynette Tan at Phillip Futures noted.

"Cocoa demand is often seen as related to GDP, and a downturn in economy is likely to crimp demand, especially ahead of the holiday season."

Better sales

What little consolation bulls were provided included a 0.1% higher to 90.82 cents a pound in New York


, for December delivery, although that said, the better-traded March eased 0.04 cents to 90.87 cents a pound.

The fibre was helped by a third successive weak of bumper US export sales, of nearly 800,000 running bales – although, again, nearly all were for China as part of a restocking exercise which does not count as so bullish for many investors, with cotton being conveyed rather than consumed.

US export sales were actually good for soybeans too, at more than 920,000 tonnes, ahead of market forecasts, and improved, if hardly inspiring, for corn, at 350,000 tonnes, counting both the current and next crop years.

For wheat, the figure of nearly 615,000 tonnes was well ahead of forecasts.

'Nearing technical support'

Other reasons for the better trading earlier on included strong US cash markets, notably for corn.

"Cash basis markets have firmed as pipelines tighten on lack of new producer selling and end-user prices has been evident on this week's sharp losses, which may offer some underlying support with markets technically oversold," Minneapolis-based broker Benson Quinn Commodities said earlier on.

US Commodities added that "grain basis levels are tightening. Corn is nearing technical support" around an early-October low, when intraday the December contract fell as low as $5.72 ¼ a bushel.

Meanwhile, "weather in Argentina and Brazil may be seeing a dry trend emerge", a particular worry in this, a La Nina year, while China's CNGOIC crop bureau continued to cause some price optimism with a forecast of rising soybean imports by the top buyer of the oilseed.

Rivers run low

However, it was as nought after the Belgian downgrade news erupted, sending the safe haven of the


higher very nearly to a 10-month high against a basket of currencies, and worsening prospects for dollar-denominated exports including many crops.

At least Paris wheat was a beneficiary of this, ending up 1.7% at E175.75 a tonne for the March contract, as a tumbling euro made made it more competitive to buyers in other currencies.

The grain was also helped by its earlier close, missing out on the worst of the Chicago pullback.

London feed wheat for May added 1.0% to E144.50 a tonne, with help from continental European demand overcoming disappointment at the European Union decision on Thursday to extend zero tariff imports on the grain.

Thanks to a dearth of rain, the Danube and the Rhine "and their tributaries have very low water levels, seriously restricting barge traffic", UK grain traders at a major European commodities house said.

"Consequently supplies wheat and maize from central Europe are unable to reach the feed manufacturing centres in Germany, Holland and Belgium," prompting demand for UK supplies instead.


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