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Evening markets: South America dryness fears lift soybeans

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A "risk-on lite" start to financial markets on Friday gave way to a "risk-off lite" feel, with Fitch seeing its chance to sour the pot.

The ratings agency, with the ink barely dry on its downgrade of seven major European and US banks, including Barclays, Citigroup, Credit Suisse and Goldman Sachs, had a go at sovereign ratings too.

A list including Belgium, Cyprus, Ireland, Italy and Spain were put on rating watch negative, meaning a downgrade may be on its way.

That ensured weak closes to


in European markets, if not hugely so, with London stocks ending down 0.3%, and a similar loss for Wall Street shares in late deals.



dropped 0.6%, to about $103 a barrel.

More South America fears

But the modestly negative sentiment was nothing that agricultural commodities could not manage to overcome with a little help from solid fundamentals.



look, potentially, to be getting that in spades, as the concerns keep piling up about South American dryness.

Today's roster of comments included Benson Quinn Commodities' idea that "weather in South America is dry through mid-week.

"If no rain shows up, the dryness will become more serious and may provide some buying interest".

US Commodities warned that some farmers in Brazil's Rio Grande do Sul were "replanting


and soybean fields to the dry weather".

About 10% of the state's 1.2m hectares of corn "has been damaged by drought", the broker said, adding that corn pollination could be on the line conditions do not improve.

"A continued dry forecast for the remainder of December would decrease production dramatically."

'Hit-or-miss showers'

And dryness is looking increasingly likely.

Gail Martell, at Martell Crop Projections, noted that "the new forecast indicates below-normal rainfall may continue in South Brazil in the week ahead".

And further north in the soybean area of Mato Grosso, while rains have resumed following a crop-stressing dry spell, "hit-or-miss showers mean that not all soybeans are getting the heavy rain they need, especially with already depleted field moisture".

And as a further fillip for soybeans, Paul Georgy at Allendale noted that the "market is also hearing Argentine farmer may not follow wheat with double crop beans due to dry soil conditions".

Meanwhile, Informa further lowered its forecast for US sowings next year, by some 500,000 acres to 74.6m acres.

January soybeans rose 1.6% in Chicago to close at $11.30 a bushel.

Huge sowings ahead?

Corn was less strong, with some analysts talking of temperatures remaining conservative in South America, and so limiting the idea of pollination damage.

Furthermore, Informa lifted its estimate for 2012 US corn sowings further to a monster 94.389m acres from 94.0m acres last month.

That would easily top the 93.527m acres in 2007 to set a post-World War II high.

The March contract gained 0.7% to $5.83 a bushel.

'Reaching fair value'

Even so, that was better than the average commodity, which showed a 0.2% rise according to the CRB index.

But it was not quite enough for the grain to hold on the premium it had regained earlier over


, which for March delivery added 0.8% to $5.83 ¾ a bushel.

Not that wheat lacked its supporters (which did not include the Canadian Wheat Board).

US Commodities noted that the trouncing of US prices since early September had ended with US physical prices in Gulf of Mexico ports "$10 a tonne below Russian offers", Russia having been the price leader until lately.

"US values are becoming more competitive with world values and are reaching fair value," US Commodities said.

Beet vs sugar

Some soft commodities gained too, including New York raw


, which for March delivery closed 1.5% higher at 23.08 cents a pound.

While Czarnikow raised its estimate for the world surplus by 800,000 tonnes to 6.1m tonnes, that was within the realms suggested by many other commentators.

What was more reassuring for bulls was an explanation of relatively resilient prices – the fact that the rise in crop production is down to beet - rather than cane, the source of raw sugar which is the big traded commodity.

Colombia question


fell amid ideas of a supply uptick from Central America about to hit the market, and defying hopes from Commerzbank of a stronger performance.

"The poor coffee harvests since 2009 in Colombia, the world's second-largest exporter of high quality Arabica coffee, were mainly responsible for arabica prices rising threefold to over 300 cents a pound between early 2009 and May of this year," the bank said.

"The ongoing harvest problems in Colombia this year should thus slow the latest sharp fall in coffee prices. In November, the coffee harvest in Colombia was down 13.7% year-on-year for the eighth time in a row."

Still, March arabica beans closed 1.2% lower at 215.10 cents a pound.


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