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Evening markets: Greek chaos adds grist to grain bears' mill

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February may be the shortest month, but proved on Friday that it can be anything but sweet.

The impact of China's weak import data on sentiment was assuaged a little, at least on agricultural commodity markets, when the US revealed that it had sold two cargoes of

soybeans

to the country.

Demand from the top buyer of the oilseed was still alive.

And, indeed soybeans for March managed a positive close, up 0.1% at $12.29 a bushel.

Cotton

, of which China is also the main importer, did too, as talk of mills and merchants out there still willing to buy at the right price saw the benchmark March lot fall only briefly below 90 cents a pound only to recoil to finish at 90.61 cents a pound, up 0.3%.

Greek tragedy

But the poison to markets from Greece's debt problems was not contained so easily.

What had looked such a promising situation on Thursday, when the Greek government at last agreed austerity measures to win a E130bn bailout, turned out quite the opposite, when the strictures were deemed insufficient by eurozone finance ministers.

That sparked 2011-style chaos. Five Greek ministers resigned, protesters clashed with police, and unions began a 48-hour strike.

And investors resumed their best risk-off posture, sending

shares

lower, by 1.5% or so in Frankfurt and Paris, and 1% on Wall Street in late deals, and the safe haven of the

dollar

higher, up 0.7% against a basket of currencies.

The

Vix

"gauge of fear" volatility index jumped 11% to return above 20 points for the first time this month.

Cool on cocoa

The average commodity lost 1.1%, according to the CRB index, and many farm commodities dropped more – especially the likes of

cocoa

and

wheat

which had been speculators' favourites for bets on falling prices, ahead of the late January rally.

The short-covering which buoyed both these commodities then went into reverse, landing cocoa for March with a 3.6% loss in New York, to finish at $2,156 a tonne.

London's March lot was protected somewhat by softer sterling, ending 2.9% lower at £1,411 a tonne.

'10 degrees below normal'

The picture with wheat was complicated by the bitterly cold weather still affecting much of Europe and the former Soviet Union, besides China, and which is set to hang around for many areas.

A strong ridge in the jet stream over the Azores and north east Atlantic "will rapidly expand pushing up almost to Iceland and into all of France and the UK", WxRisk.com said.

"The effect of this will be to force the cold air back into central and eastern Europe by next week", if warming up France, Spain and the UK.

"Temperatures over the next seven days will be extremely cold. From the Pyrenees to western Russia, temperatures will average 10 degrees Celsius or more below normal," the weather service said, not for the first time.

'Demand not letting up'

Besides threatening winterkill, this is cutting supply lines from the former Soviet Union, with ships stuck in ice in the Azov Sea, and ports and internal transport severely disrupted.

Parts of the Danube too are closed because of ice, as well as some canals linking Germany to mills in the Netherlands - risking a repeat of the situation late last year, when low river levels forced Dutch buyers to turn to marine transport and the UK for supplies.

Indeed, "the demand for spot delivery grains into destinations across Europe, the Black Sea and the Mediterranean is not letting up", UK grain traders at a major European commodities house said.

Which should be good for prices.

'Awoke the sleeping bear'

Except there is some suspicion that some of the demand stories may have been overplayed, including the 200,000-tonne purchase by Spain of US wheat which Reuters reported.

"Some doubt has arisen since the 200,000 tonnes in question did not appear amongst the low-grade wheat import licences issued by Brussels yesterday," the grain traders said, while acknowledging that this may be because the order was of milling rather than feed wheat.

And further on the downside, of course, was the hangover from the US Department of Agriculture Wasde report on Thursday which lifted the estimate for world wheat stocks to a record 213m tonnes.

"The USDA's reminder that world wheat stocks are record large awoke the sleeping bear," Benson Quinn Commodities said.

Wheat for March fell 0.6% to E206.50 a tonne in Paris, and for May by 0.4% to £166.75 a tonne, and did even worse in the US, pressed by the strong dollar too.

Chicago wheat for March tumbled 2.5% to $6.30 a bushel.

'Fallen off the shelf'

That was enough to lose wheat its briefly-regained premium over

corn

, which ended down 0.8% for March at $6.82 ½ a bushel.

Certainly, corn faced its own pressure too, with Darrell Holaday at Country Futures noting "more and more talk of ethanol plants idling back and reducing production", a picture, after all, suggested by official data on Wednesday.

US Commodities added: "Ethanol export demand however has fallen off the shelf," with orders "non-existent" from Brazil, which turned importer last year as its own mills turned cane into high-priced sugar rather than the biofuel.

However, on the bullish side, the USDA revealed that Mexico had bought 240,000 tonnes of American corn, a development Mr Holaday termed "definitely positive", while many observers believing that crop downgrades due to South American drought have not played out yet.

Martell Crop Projections was one, saying that Thursday's Wasde report "was too optimistic on Brazil potential, not appreciating the damage from worsening drought in south Brazil",

By Agrimoney.com

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