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Evening markets: Opec's oil feud fuels jump in corn price

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It might have been a poor day for agricultural commodities, were it not for Opec.

Comments from Ben Bernanke, the head of the US Federal Reserve, appearing to rule out a third round of so-called quantitative easing – ultra-loose monetary policy – presented, after all, three challenges to raw materials markets.

Some might see that as lowering US economic prospects, so hitting demand for commodities, besides reducing the flow of easy money which seen as supporting raw material markets.

Theory also suggests a more robust monetary policy approach would support the dollar, which indeed rose 0.6% against a basket of currencies, making dollar-denominated assets such as Chicago and New York commodities less competitive as exports.

Cartel split

But Opec's inability to agree on a rise in oil production, which has been well-trailed by Saudi Arabia and had appeared something of a formality, put a fresh spin on events.

It didn't do much to help shares, which closed down 1% in London. And some questioned whether it should have been deemed bullish to farm commodities too.

"Without an agreement we may see Saudi Arabia increase oil production and simply ignore Opec," Darrell Holaday at Country Futures said.

Besides, while higher oil prices may improve the case for crop-sourced fuels such as bioethanol, made mainly from corn or sugar, they are hardly good for economic growth and therefore demand.

Biofuel fillip

Still, crop investors had some extra reasons for cheer. Weekly US ethanol production jumped to 915,000 barrels in the week to June 3, the best figure since late January.

And the US Department of Agriculture is expected, in its latest Wasde world crop report due on Thursday, to cut its forecasts for US

corn

inventories both for the closes of 2010-11 and 2011-12.

Demand for the grain, for example from the aforementioned ethanol industry, is seen holding up better than many had expected, given high prices, while production prospects have worsened with the slow pace of US spring sowings.

And weather continues to pose fresh challenges, with rain on its way to many regions – relieving the hot and dry conditions which had looked negative to corn, but adding moisture when, with wet already slowing spring wheat sowings and inundating land around the Missouri River, it will not be universally popular either.

Chicago corn closed up 3.7% at $7.64 a bushel for July delivery, with the new crop December contract up 2.6% at $6.93 ¾ a bushel.

El Nino ahead?

That was a big help to Chicago

wheat

which, while finishing well below its highs for the day, still put in a better performance than in most sessions since Russia 10 days ago revealed a return to exports, with pressure from a better-than-expected US hard red winter wheat harvest telling too.

The July lot ended 1.9% higher at $7.48 a bushel, with the Minneapolis July contract rediscovering winning ways too, rocketing 3.7% to $10.21 ½ a bushel.

The grain's performance was underpinned by the prospect of the end of the rains which have provided much-needed refreshment for northern European crops.

"The rainy pattern of Interval over western Europe, France and Germany is about over," WxRisk.com said.

Weather models showed "near-normal temperatures and rainfall for France in the 6-to-10 day [outlook] but from Germany to Poland into the Ukraine it looks warmer and drier than normal".

The weather service also mentioned, whisper it, what could be the first signs, in warmer Pacific water temperatures off Peru, of a "weak El Nino as we move into the autumn".

Paris wheat for November, the best-traded lot, ended up 3.8% at E234.00 a tonne, helped too by a weak outlook for this year's French crop from FranceAgrimer officials. London's November lot gained 2.4% to £189.00 a tonne.

Brazil bean boost

The strong performance spilled over into

soybeans

too, which closed up 0.5% in Chicago at $14.01 ½ a bushel, despite the bearish news of a further upgrade by Brazilian officials at the Conab crop bureau to their harvest tally.

The world's second-biggest soybean crop for 2010-11 was pegged at a record 75.0m tonnes, up from a May estimate of 73.6m tonnes.

(Conab also raised by 700,000 tonnes, to 56.7m tonnes, its estimate for the corn harvest, against the run of play of other analysts concerned at the dry conditions besetting the winter crop.)

'Run short'

The positive mood spilled over into many soft commodities too, helping New York raw

sugar

close 2.5% to the good at 24.95 cents a pound for July delivery, helped by its own credentials as an ethanol source.

Even then, raw sugar could not keep up (again) with London white sugar, which set a two-month high of $715 a tonne before easing to finish $714.40 a tonne, up 3.0%, and viewed as a sign of buyers having let themselves run short of near-term supplies.

"We continue to be surprised by the current rally and can only put it down to the trade in general having run short of the market over the past month or so," Nick Penney at Sucden Financial said, noting widespread expectations of a market surplus this year.

"The logistical problems in Thailand and Brazil and the slow start to the Center South crop in Brazil may have caught everyone by surprise, and this has caused a nearby trade flow shortage making it attractive to try and take delivery of the futures markets."

Cotton breaks

But

cotton

could not ride the zeitgeist, depressed by India's consent of a further 1m bales in exports of the fibre, in addition to the 5.5m bales already permitted for shipment.

New York's July cotton lot fell 2.4% at 145.05 cents a pound. Still, at least that was an improvement on the falls down the exchange maximum recorded in the previous two sessions.

By Agrimoney.com

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