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Evening markets: barrage of woes takes heavy toll on crops

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Where did all the buyers go?

Darrell Holaday at Country Futures summed it up so: "This has been one of the most negative days we have seen in the overall marketplace in a long time."

It certainly made ugly reading for any investor with a long position in anything deemed a risk asset, with

shares

closing down 4% plus on European markets, and down 3.5% in New York in late deals.

The one notable gainer was the

dollar

, up 1.3% against a basket of currencies, which only made things worse for investors in dollar-denominated commodities, making them more less affordable as exports.

"Across the board, US export sales of grains are lower from a year ago," Mr Holaday said.

"If you look at the amount exported and outstanding sales,

corn

is down 8% and

soybeans

down 23% in the crop year that just began.

Wheat

is down 16%."

'Nothing to do with fundamentals'

All commodity types were caught in the meltdown, with

copper

plunging nearly 8% to a one-year closing low of $7,674 a tonne in London, and Brent

crude

shedding 4.2% to drop below $106 a barrel.

Grain, oilseed closing prices

Chicago corn: $6.50 a bushel, -5.2%

Chicago wheat: $6.33 ¾ a bushel, -5.0%

London wheat: £156.55 a tonne, -2.6%

Chicago soybns: $12.83 a bushel, -2.5%

Paris wheat: E192.00 a tonne, -2.4%

Paris rapeseed: E437.50 a tonne, -2.1%

Closing prices for near-term contracts

cocoa to a one-year low, on a spot contract basis (although it did recover much lost ground), while orange juice set a six-month low, and London white

sugar

fell to its weakest for nearly four months.

In Chicago, soybeans closed at a six-month low, and within an ace of their weakest since 2011, while wheat and corn set two-month bottoms.

GrainAnalyst floor trader Matthew Pierce said: "This has nothing to do with fundamentals so traders have to put those on the backburner again waiting for the collapse to work itself out."

'Dangerous place'

What it had to do with was the raft of weak economic news, which ambushed investors at every turn.

If it wasn't the poor assessment late on Wednesday by the US Federal Reserve of the American economy, it was the warning by Christine Lagarde, the head of the International Monetary Fund, said the economic situation was entering a "dangerous place".

In the European Union, a survey by Markit showed private sector activity contracting for the first time in two years, and China got caught up too, with an HSBC report indicating a further slowdown in the country's manufacturing sector.

As Mr Holaday noted, a slowdown in Asia, and particularly China, "is not good for the commodity sector as that area has represented a broad base of commodity demand in the last two years when much of the world has been very slow".

The bullish case

In fact, on the fundamental score, there were reasons for some cheer, such as an estimate by Argentina of its wheat crop at 11m-13m tonnes. The US Department of Agriculture has the figure at 13.5m tonnes.

Soft commodity closing prices

New York arabica coffee: 239.25 cents a pound, -5.0%

New York raw sugar: 25.67 cents a pound, -4.3%

New York cotton: 99.29 cents a pound, -3.4%

New York cocoa: $2,680 a tonne, -1.7%

Closing prices for near-term contracts

Weekly US export sales were within the range of market estimates on corn and soybeans, and ahead on wheat, at 675,000 tonnes.

And China did turn up with a 180,000-tonne soybean order on top, released through the USDA's daily reporting system.

Sure, it has yet to be confirmed as a buyer of US corn, a rumour which had kept the grain propped earlier in the week.

But there was hope after an executive at trading giant Cofco pegged the domestic crop, even at a record 181.5m tonnes, only just covering demand, and depleted US prices making them cheaper to China, whose currency is tied to the greenback.

"The market has now sunk back to levels that China is believed to be interested in corn purchases. This is $6.50-6.75 a bushel," US Commodities said.

Prices dip

But, with the higher volatility raising fears of increased margin calls, meaning commodity investors have to put down more to cover futures bets, besides the external liquidation, crops headed only one way – downward.

Chicago corn for December tumbled 5.2% to a two-month closing low of $6.50 a bushel, ending again pretty near its day low, while December wheat ended down 5.0% at $6.33 ¾ a bushel, also a two-month finishing low.

Soybeans dropped a more modest 2.5%, to $12.83 a bushel for November, but set a six-month ending low.

Coffee cools

Among soft commodities,

coffee

was notably weak, closing down 5.0% at 239.25 cents a pound in New York for December delivery, hit by a bad chart and softness in the Brazilian real, as well as the general liquidation.

"The weak Brazilian real, and the call for rains are one factor, but the drop to new lows has also helped drive coffee even lower," Jurgens Bauer at PitGuru said.

And even

cotton

succumbed eventually, after earlier surprising investors with its relatively weak losses.

"For whatever reason, big short covering and put selling, possibly by commercials, is holding prices remarkably steady," Louisiana-based cotton specialist Mike Stevens said earlier on.

"Despite horrible outside market influence, support at 100-101 cents a pound continues to hold."

'Demand looks terrible'

But the support gave way eventually, to send New York's December contract down 3.4% to 99.50 cents a pound in late deals.

"Cotton demand looks terrible. Prices fell again and likely will continue to drop," Mr Bauer said.

Mr Stevens also noted "meagre" US export sales data for cotton, "clearly reflecting the extremely uncompetitive position US cotton is in".

The rate of actual shipments was "even worse… far below the average needed to meet the USDA projection".

By Agrimoney.com

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