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Evening markets: French double whammy sinks farm commodities

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Just when agricultural commodity bulls thought it was safe to put their feet up, along came France to kick away their stools.

A largely firm day in Chicago gave way to a dismal finish after Nicolas Sarkozy, the French president, told politicians that the Franco-German coalition was not so cosy on some of the smallprint of rescuing Greece (again).

In short, President Sarkozy sees an enhanced role for the E440bn European financial stability fund, which Germany does not.

In a second blow from France, reports emerged that its banks were curbing lending, a particular blow for commodities as they are big financiers for the important Swiss-based raw materials investors,

"There is a looming bank crisis in France it seems, and Germany wants France to pay for that," Thomas Kujawa at [French-based] soft commodities trader Sucden Financial said.

Risk assets in general turned sour. But investors tumbled over themselves to sell commodities, even without the

dollar

showing gains (and so reducing the appeal of dollar-denominated exports).

Ethanol output jumps

Copper

tumbled more than 3% in London, while Brent

crude

retreated from $111 a barrel to $108.50 in late deals, down 2.4% on the day, and a negative sign for crops used in making biofuels.

This relationship is especially significant at the moment, when biofuels plants are falling over themselves to snap up

corn

and cash in on US tax perks on ethanol while they last.

In fact, official data showed US ethanol production jumping 5.6% week on week to its highest since early August as a period of plant maintenance shutdowns ended.

December corn fell back from $6.51 a bushel, where it had regained its 200-day moving average, to lose it gain, closing at $6.38 ½ a bushel in Chicago, pretty much its day low and down 0.9%.

Later lots win

And this time the bet on near-term contracts over far away ones, on ideas of an unusual reluctance by farmers to sell didn't work.

Benson Quinn Commodities issued a reminder of the theme, saying that "fresh-harvested corn and soybeans are going into on farm-storage in anticipation of higher prices later in the season".

Darrell Holaday, at rival broker Country Futures said there was "still very strong demand for cash corn and basis levels reflect this desire by ethanol plants to get their hands on grain", before the tax perks disappear at the end of the year.

But it was later contracts that did better on Thursday, with the May 2012 lot, for instance, shedding a more modest 0.6% to $6.54 ¼ a bushel.

'Mount Everest of wheat'

Against that background Chicago

wheat

, which has depended on its atypical support to corn for much of its support, had little chance of holding on to its gains.

As GrainAnalyst trader Matthew Pierce said, "there is a mountain, I mean Mount Everest, size pile of soft red winter wheat available," soft red winter being the type traded in Chicago.

"If you want it, it's yours."

The shame for the supporters of the wheat complex was that there was some helpful news around on Wednesday, with poor weather setting back into the southern Plains, hard red winter wheat country, where good conditions for sowings have been in short supply.

Drought and frost

Dryness is one thing.

"The forecast is still not positive for the southern Plains. The rain two weeks ago has not been followed up by projections of additional rain and that is starting to prompt buying in the wheat," Mr Holaday said.

Frost was another.

"Freezing temperatures are expected as far south as Tulsa, Ohlahoma putting the crop in danger of hitting hibernation with little to no root system," Mr Pierce said, plant development having been slowed by a lack of rain.

"This is going to become a real problem if the frost comes through for extended hours."

Farmer stand-off

Furthermore, there is a reluctance by farmers to sell hard red winter wheat too.

"I have not talked to one producer in the Texas, Kansas or Oklahoma region that will offer any stocks come delivery. If they didn't sell at $9.00 a bushel they sure as hell are not going to sell at $7.25 a bushel," Mr Pierce said.

In fact, the hard red winter wheat, traded in Kansas, could not resist the sell-off, and ended down 0.8% at $7.05 ½ a bushel for December delivery.

With that prop, as well as corn, gone Chicago wheat for December ended down 0.9% at $6.19 ½ a bushel.

Yield downgrade ahead?

Still,

soybeans

were Chicago's biggest losers, again, proving as laggardly this week as they were strong the last one, closing down 2.1% at $12.25 a bushel for November.

The decline was blamed on pressure from the US harvest, upping supplies and so strengthening buyers' bargaining power, as well as decent sowing conditions in South America and economic jitters in China, the top importer of the oilseed.

Still, it should be noted that there is growing expectation of a further downgrade to the US official estimate for the domestic harvest, as revealed in monthly Wasde crop reports.

"The fear is that soybean yields will sink again in the November report - small crops get smaller," US Commodities said.

Influential analyst Michael Cordonnier said: "When the US Department of Agriculture lowers the US corn and soybean production estimates in September and then again in the October crop report, there is a 70-80% probability that the estimate will decline again in the November report or the year-end summary in January."

Market debates

Among soft commodities, raw

sugar

, in which speculators have a relatively large position, succumbed to French bank funding fears and late selling too, tumbling from an intraday high of 28.26 cents a pound to end at 26.97 cents a pound, down 3.2% on the day in New York, for March delivery.

Sucden's Thomas Kujawa also noted that "the trade seem to have quite different opinions on the coming northern hemisphere crops, particularly Russia - some say 4m tonnes to process some say 5.5m tonnes".

Opinions over India differ on "timing and tonnage of exports", and on Thailand over the impact of flooding.

But

cocoa's

rout reversed, leaving New York's December contract to close up 1.2% at $2,603 a tonne, after setting a two-year low in the last session.

By Agrimoney.com

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