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Evening markets: China and weather talk send grains soaring

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Agricultural commodities again showed their independence from other risk assets - even metals and energy.

And time time, crops came out on top.

While

shares

fell by 0.9% in London, and more than 1% in New York, and commodities overall achieved only a 0.04% gain, as measured by the CRB index, many crops had a red letter day.

Sour sugar

OK, not all.

New York raw

sugar

for May tumbled 1.3% to 22.05 cents a pound for May delivery, a fresh 10-month low for a spot contract, despite a lowball forecast by Canaplan of a cane crop of 470m tonnes in Brazil's Centre South region, responsible for nearly 90% of domestic output in the world's top sugar producer.

The figure would represent a fall from last season's 493m tonnes, and was well below the estimate from cane industry group Unica last week.

But the downgrade was trumped by the more immediate issue of permits for further Indian sugar exports, with an extra 1m tonnes being the number investors expect, after a strong crushing season.

Commonwealth Bank of Australia, forecasting lower sugar prices ahead, said that Indian output of the sweetener looked set to beat an industry forecast of 26m tonnes.

Harder softs

But most

cotton

contracts continued their revival, with New York's best-traded July lot adding 0.8% to 90.72 cents a pound, if at part of the expense of the May lot, which investors quit ahead of expiry next week.

The May contract closed down 0.4% at 91.53 cents a pound.

US weekly cotton exports were, at 35,000 running bales, 2011 and 2012 crops combined, a marked improvement on figures the previous two weeks, if nowhere near the upbeat levels earlier in March.

And New York

coffee

for July rebounded 0.4% to 175.65 cents a pound, amid some wariness about speculators' willingness to take on further short positions.

'Chinese buying'

But the biggest rises were in Chicago, where

corn

ended 3.2% higher at $6.21 a bushel for May delivery, spurred by a fresh round of rumours of Chinese buying on the break which in the last session sent futures to their lowest close in three months.

"As corn prices in China trade near record highs, there is word that private firms have requested additional import licenses and talk that at least one cargo of corn traded overnight," Benson Quinn Commodities said.

At Country Futures, Darrell Holaday said: "After the big break yesterday, China is rumoured to have stepped in and bought 500,000-700,000 tonnes of old crop US corn.

"This has not been confirmed by US Department of Agriculture, but there is strong consensus within the industry."

'Big glob of rain'

As if that was not enough for bulls – who needed some ammunition after weekly US corn exports came in at 300,000 tonnes, less than half most market expectations - Argentina late in the session downgraded its estimate for its drought-hit corn harvest by 900,000 tonnes to 20.3m tonnes.

And Japan, the world's top corn buyer, signalled displeasure with corn from Ukraine by suspending purchases until the next harvest, apparently on quality grounds.

Some doubts even emerged about the strong pace of US corn sowings, as rains delayed some farmer, although finer weather is expected ahead.

"West of the Mississippi, you have not had the open planting window. They have had light rains the past two nights. And there is a big glob of rain in eastern Iowa," Jerry Gidel at broker Rice Dairy said.

"You have to look at the whole picture. It is no good just talking to your buddies in downstate Illinois."

Spread dynamics

This time, old crop and new crop lots moved closer in tandem, with the December contract closing up 2.5% at %5.41 ¾ a bushel.

Indeed, "there is strong indication that the liquidation of long old crop-new crop corn spreads," which affected prices strongly in the week, "is coming to an end," Benson Quinn said.

The new trend was the unwinding of long soybean-short corn spreads.

"There are a lot of long soybean-short corn positions, and we expect significant liquidation of those positions over the next weeks," Mr Holaday said.

"This will be supportive to corn relative to the soybean market."

Soybeans lag

Certainly, soybeans lagged on Thursday, and this despite some solid weekly US export sales of 1.22m tonnes, 2011 and 2012 crop combined, ahead of market hopes.

Furthermore, the USDA separately, through its daily reporting system, announced the sale of 110,000 tonnes of US soybeans to China.

And Argentina cut its estimate for its soybean harvest by 1.1m tonnes to 42.9m tonnes.

The May contract closed up a more modest 0.6% at $14.15 ¾ a bushel, with the new crop November lot adding 0.4% to $13.42 ½ a bushel.

That sent the new crop soybean: corn ratio tumbling below the key 2.50 mark to 2.48, returning some advantage to corn in the battle for US spring sowing area.

'Possibility of record heat'

Wheat, meanwhile, was helped to a stronger close not just by fellow grain corn, but by further talk of weather damage – past and potential.

"

The trade is making mention of the possibility of record heat in portions of the Black Sea region," Benson Quinn said, an issue of huge interest to markets given the devastation that drought wrought the region's crops two years ago.

Meanwhile, grain traders at a major European commodities house noted fresh "concerns over the dry weather damage and winterkill across northern Europe, in particular France and Germany.

"Talk that Poland is now also uncovering some winterkill has also supported the market," the traders said, in comments which followed acaution from USDA staff in Europe over the tightness of European grain supplies.

Wheat for May closed up 0.9% at E216.75 a tonne in Paris, and by 2.3% at $6.24 ¾ a bushel in Chicago, just maintaining its newly-rediscovered premium over corn.

London wheat for May ended 0.3% higher at £178.50 a tonne.

By Agrimoney.com

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