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Evening markets: brighter macro picture deters crop bears

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Take a little bit of optimism over the eurozone debt crisis, add a dash of improvement in US consumer confidence, and risk assets, grains included, had a recipe for gains.

OK, the rally had weakened by the close, and in soft commodities never really got going too hard.

Cocoa

continued its downward spiral, ending down 1.9% at $2,320 a tonne in New York for March delivery, the weakest for the nearest-but-one contract since March 2009.

But that said, Agrimoney.com did hear of some bargain hunting at these levels which, as Scott Briggs at Australia & New Zealand Bank noted, were on the spot market, in Swiss franc terms – important for Switzerland's huge chocolate industry – "back to their lowest level since end-2007".

And taking advantage of low prices was certainly the order of the day in grain markets.

Clement macro conditions

Largely, this meant taking profits by covering short positions, which looked a little less attractive with eurozone minister examining ways to expand the region's bailout fund, and Italy getting a bond sale away, if at high yields.

Furthermore, in the US, the Conference Board index of consumer confidence soared to 56, its highest level in more than a year, in November from 40.9 last month, making the strong Black Friday retail sales look more than a one-off.

So investors lived a little, and allowed the safe haven of the

dollar

to shed 0.4% against a basket of currencies, boosting prospects for dollar-denominated assets such as Chicago grains by making them more affordable to foreign buyers.

Oil

helped too.

"Tension in Iran has also pushed [West Texas Intermediate] crude above the $100 level at one time this morning," so helping prices of crops such as corn used in making biofuels, Darrell Holaday at Country Futures said.

'Potentially bull story'

And there were quite some shorts to cover in many agricultural commodities, as overnight regulatory data showed, pegging speculators' net short position in Chicago wheat at its biggest since at least 2006, with soybean shorts at a five-year high, and the net long in corn falling.

If holders of them needed further reasons to bail out, charts provided encouragement.

"When corn moved above yesterday's high, there was a lot of technical buying that surfaced," Mr Holaday noted.

And there were some fundamentals in grain's favour too, such as talk of a drier pattern in South America, where such weather rings alarm bells in a La Nina period.

"South America weather remains the potentially bull story," US Commodities said.

"For now all is fine. Brazil, however, is turning drier."

Australia worries

The dryness in Ukraine remains a worry too, for autumn sown crops, even if US winter wheat is recovering a little from its own dry spell, as condition data overnight from the US Department of Agriculture showed.

And rain is growing as a threat in Australia.

"Some concerns about Australian wet conditions during wheat harvest have supported wheat," Mr Holaday said.

Mr Briggs said he was "hearing heavy rain in western New South Wales has really hurt significant volumes of what was to be high protein wheat".

And in the country itself, Cargill-owned grain handler AWB warned that "continuing rains on the east coast are likely to lead to significant crop downgrades, which may place price pressure on lower quality wheat in spot markets".

Corn vs wheat

Actually, it was the lower quality Chicago soft red winter wheat which did especially well, adding 3.4% to $5.94 ½ a bushel for December and 3.9% to $6.16 a bushel for March.

Kansas hard red winter wheat added a more modest 2.7% to $6.70 a bushel for March.

Europe did better at reflecting the quality fundamental, with Paris milling wheat for March ending up 1.6% at E178.50 a tonne while London feed wheat for January, the best traded lot on the day, added 0.7% to £144.50 a tonne.

Back in Chicago, part of the reason of wheat's strength was down to investors not completely losing their taste for short positions in grains, with talk of a rush to play a "long wheat, short corn" spread.

Corn, anyway, lost half gains made earlier in the day to end up 1.1% at $5.98 a bushel for December, and up 1.2% at $6.05 ½ a bushel for March.

Delivery prospects

And this despite ideas that there will be no deliveries against the expiring December contract when it moves to first delivery on Wednesday.

Some deliveries are, however, expected for soybean products – of 2,000-3,000 lots in

soyoil

and 0-100 contracts in soymeal.

This helped bring them back down to earth, with Chicago

soymeal

for December ending 0.6% lower at $286.10 a tonne.

(Soyoil did better, helped by upbeat comments on vegetable oils from Oil World, ending up 0.6% at 49.18 cents a pound, if shedding most of a 1.7% gain made earlier.)

And this weighed a little on soybeans themselves too, which lost all but 4 cents of a gain of 17.5 cents recorded earlier on, to end at $11.25 a bushel for January.

A 1m-tonne upgrade, to 74.8m tonnes, by Agroconsult to its estimate for the Brazilian soybean crop was hardly a help.

Elastic cotton

Back in New York,

cotton

had another of its strange days, falling to 88.50 cents a pound for March delivery, the lowest for a nearest-but-one contract for 15 months, before reviving to end up 1.5% at 92.75 cents a pound.

Fundamentally, there looks little to cheer, with reports of mills closing already for the new year (ie late January) in China.

However, technically, the close looks a reinforcement of the fibres' claim to the all-important 91.25-cents-a-pound mark.

By Agrimoney.com

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