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Evening markets: Goldman, dollar, data jitters sink crops

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It was hard enough for any risk assets to make headway on Wednesday, after disappointing US data on durable goods orders cast doubt on the recovery in the world's biggest economy.

But as an extra headwind for dollar-denominated exports, such as many commodities, the

dollar

rediscovered forward movement, adding 0.2% against a basket of currencies, and so making assets priced in the greenback more expensive to foreign buyers.

Furthermore, Goldman Sachs downgraded raw materials to "neutral" from "overweight", if keeping a positive tone on

corn

.

The average commodity, as measured by the CRB index, fell 1.2%.

And many agricultural commodities fared even worse, braving the extra jitters of an end of month and quarter, when funds, with large long holdings in the complex, often tidy up positions, let alone Friday's US crop reports.

The US Department of Agriculture will unveil quarterly data (for March 1) on domestic grain stocks and an annual report on farmers' spring sowings intentions, viewed as one of the key briefings of the year for crop investors.

'Bullet-proof mentality'

It was enough, certainly, to quash some signs of a buying earlier on when some brave investors questioned whether falls have gone far enough.

Chicago corn, after all, had already dropped some $0.50 a bushel from mid-March highs, and even some soft commodities, not directly affected by the USDA briefings, are a lot cheaper than they were.

New York raw

sugar

had lost approaching 7% in three sessions, peak to trough coming into the day.

But the selling ended up widespread on Wednesday. Even

soybeans

, the Chicago favourite of late, got hurt despite what Paul Georgy at Allendale termed a "bullet-proof mentality about being record long" in the oilseed.

"Brazil crop watchers continue to downgrade the soybean production for that region," he noted

At Country Futures, Darrell Holaday said: "The soybean support continues to centre around South American production numbers and the concern that soybeans will lose acres in the US" to corn which, as an earlier-sown crop, appears to be being particularly favoured by farmers enjoying benign planting conditions.

Chinese purchases?

In Chicago, rough

rice

actually led the decline, falling 2.4% to $14.740 a hundredweight for May, sapped by news of Bangladesh lifting a three-year-old export ban.

Bangladesh, whose rice stocks have doubled to 1m tonnes over the past year thanks to a strong harvest, has in the past been an exporter to the US.

Among the big three, corn did worst, closing down 1.7% to $6.20 ¼ a bushel, a two-month low for a spot contract.

This is the level that was, by rumour, meant to spark Chinese interest.

After all, even at prices at the beginning of the week the import arbitrage for Chinese users buying from the US, rather than at home, was $0.18 a bushel tax, shipping etc included, according to Morgan Stanley.

And, right on cue, reports emerged that Chinese buyers had purchased six cargoes for May and June shipment.

Near one-year low

Still, news of Chinese imports has a rich history of being more supportive to prices in the speculation phase than in confirmation.

Furthermore, ethanol production data was hardly upbeat, with output falling 4,000 barrels a day last week to 889,000 barrels a day, the lowest since October.

Indeed, with talk still lingering of ethanol plants producing more ethanol per bushel of corn, it offered a scrap to the bears.

For corn "the focus has now become the concern about large acreage numbers and the reality that stocks may be larger than expected March 1 because of much lower feed use numbers during the winter and better ethanol yields", Mr Holaday said.

New crop corn, affected by thoughts of both higher end-2011-12 stocks and bumper sowings, actually suffered worse, dropping 2.5% to $5.36 ¼ a bushel, only a couple of cents away from a one-year low for the contract.

With new crop November soybeans falling a more modest 0.6% to $13.20 ¼ a bushel, the new crop soybean:corn ratio hit a fresh one-year high of 2.46.

'Becoming a concern'

Wheat

at least did better than corn, falling 1.4% to $6.30 ¾ a bushel for May in Chicago, given some support by another US victory in an Egyptian tender for the grain, although this time shared with Argentina, which actually turned out the cheapest offer excluding shipping.

Furthermore, even if US crop is improving, the drought fears for European wheat show no sign of abating.

"European wheat remains stressed as the lack of moisture is becoming a concern," broker US Commodities said.

"Forecasts for rain have been removed and continued lack of precipitation is expected into mid-April."

Still, Russia added some pressure by signalling that its jump in world grain exports for 2011-12 to an estimated 26m-27m tonnes was no one off, expecting 25m-27m tonnes next season too.

In Europe, Paris wheat for May closed down 1.0% at E211.25 a tonne, with London's May contract shedding 0.8% to £172.65 a tonne.

'No justification'

Among soft commodities, New York arabica

coffee

returned to the doghouse, falling 2.9% to 182.00 cents a pound for May to give back most of the gains of the last session.

Sure, there is plenty of analyst talk that the decline in arabica prices may have gone far enough, with Commerzbank adding its voice to those such as Macquarie Securities and Rabobank in questioning the rout.

"In our opinion, there was no justification in fundamental terms for the fall in price to a 17-month low" last week, Commerzbank said.

"The National Coffee Council in Brazil reported, for example, that global inventories could decline to a critical level ahead of the next Brazilian harvest.

"What is more, there are fears that unfavourable weather conditions could lead to shortfalls in this year's crop."

Still, the broader market conditions were hardly fertile ground for more of the short-covering behind the last session's recovery.

Cotton soars

New York raw sugar fell too, if limiting its losses to 0.2%, leaving the May contract at 24.37 cents a pound.

Thomas Kujawa at Sucden Financial noted "rumours of a large trade house looking to take delivery" in the complex.

It was

cotton

which performed best, soaring 1.5% to 94.03 cents a pound for May, largely on technical factors, with the contract during the session breaking up through its 100-day moving average, having regained the 50-day line in the last session.

By Agrimoney.com

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