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Evening markets: Paris wheat milks growing competitiveness

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Financial markets came round to the idea that the downgrades of nine eurozone nations, including France, on Friday by Standard & Poor's had been just about priced in to asset prices.

And that engendered a little bit of a risk-on feel, although investors did not overindulge themselves given that US markets, which they usually turn to for a steer, were closed.

London

shares

closed 0.4% higher, and the safe haven of the

dollar

turned from marginal strength early on to a small decline.

In agricultural commodity markets, the benign sentiment came too late for

palm oil

, which ended down 0.7% at 3,126 ringgit a tonne in Kuala Lumpur, still feeling the impact of Thursday's US report showing crop supplies higher than investors had expected.

Russia price rises

However, Paris

wheat

kept on where it left off the last session, adding 0.6% to E198.25 a tonne for March delivery.

The day brought more on the increasingly competitive edge of French wheat, fostered by a weak euro, which allowed the grain to victory on Friday at a tender from Egypt, the world's top buyer – the second such result in eight days.

Russia's growing difficulty in competing was highlighted in reports from analysts showing the increasing price of the grain as merchants are forced to travel further and further for supplies, after wheat stores near to port became depleted by the bumper start to 2011-12 for exports.

SovEcon said that fourth-class milling wheat, the type used in exports, was selling at around $240 per tonne CPT basis in deep-water Black Sea ports, up around $10 compared with prices before the New Year holiday.

'Principal driver'

Furthermore, South America remained worryingly dry, not a direct concern for wheat, which is already harvested, but for corn, with which it competes in feed markets.

"Some rainfall was observed in Brazil this weekend, but not in Argentina," Agritel, the Paris-based consultancy, said.

"Meteorologists forecast dry and warm weather in Argentina for the coming days."

The Home Grown Cereals Authority, the UK crop bureau, said: "Weather and actual harvest yield over the coming weeks may remain a principal driver of global oilseed markets."

'Drilling wheat into dust'

And it is not as if the garden is all rosy in the US too, despite the report last week showing bigger winter wheat plantings than expected.

"The increase in the wheat acreage may not be as impressive as it looks," UK grain traders at a major European commodities house said.

"There is talk that in the dry areas of the Great Plains, growers have been drilling wheat into dust, solely to be able to claim on their crop insurance."

'Market is torn'

The bullishness did not spread to London wheat, which for the best traded (if barely traded) May lot closed unchanged at £155.50 a tonne.

The grain had the headwind of modest strength in sterling, which gained against both the dollar and the euro.

And Paris

rapeseed

was mixed, closing down 0.1% at E450.00 a tonne for the best-traded February lot, but up 0.3% at E435.50 a tonne for March delivery.

"The rapeseed market is torn between a tight balance sheet in Europe and a lower crude oil at the end of last week," Agritel said.

'Stocks are not plentiful'

The UK grain traders said that "reading the oilseed rape market is becoming an increasingly difficult task", given that it has attracted a significant premium to soybeans, so squeezing processing markets.

"In spite of this, the crushers have been actively buying and supporting the market.

"Certainly, stocks of seed in Europe are not plentiful, even with all the cargoes of Australian seed now arriving."

Mixed softs

Meanwhile, among soft commodities white

sugar

added 0.6% to $625.50 a tonne, feeling the benefit of the improved macro mood besides of the European Union's decision to ditch import tenders, boosting prospects for prices of the region's own supplies.

But

cocoa

extended its reversal, falling 2.1% to £1,481 a tonne, following Friday's poor EU grind data.

"The cooling of demand is not sufficient to give additional buoyancy to prices given that a moderate market surplus had already been anticipated for the 2011-12 season," Commerzbank said.

Still, there were some questions over how much longer bears can remain in charge.

"Cocoa prices will continue to be supported by the recent slowdown in Ivory Coast port arrivals [of cocoa from farmers] and concerns over the impact of Harmattan and dry weather," Sudakshina Unnikrishnan at Barclays Capital said.

By Agrimoney.com

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