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Evening markets: cocoa leads crops to, relatively, firm day

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Have agricultural commodities found a reserve of that old defensive magic, that ability to play on their idea as food items in demand come recession, or even depression?

It's worth asking because for the second time in three trading days many of them managed to avoid most of the weakness in external markets, as the optimism dried up over the European deal on Friday designed to tackle the eurozone debt crisis.

Moody's comments earlier that it did not believe the EU had done enough to halt the crisis, adding that it will reviewed its ratings for European countries, tallied with what many investors felt, giving markets that "risk-off" feel.

Wall Street


were 1.9% lower in late deals, the


"gauge of fear" volatility index gained 3.2% and the safe haven of the


soared 1.1% against a basket of currencies, making the weather especially heavy for dollar-denominated commodities in eroding their competitiveness.

Commodities on average tumbled 1.2%, according to the CRB index.

'Divorced from outside markets'

But many agricultural commodities did better, and despite a US Department of Agriculture Wasde crop report on Friday viewed as bearish across the board.

"The grains have done an interesting job of divorcing from the outside markets," Darrell Holaday at Country Futures said.

"After opening under pressure, all of the grains have rallied sharply off the early lows."

Grains ended lower, but not disastrously so.

Bouncing beans


, not covered in Wasde's, soared 5.5% in New York for the best-traded March contract to finish at $2,181 a tonne – albeit not before setting a three-year low for a nearest-but one contract of $2,067 a tonne.

The positive finish ended a run of 11 consecutive negative closes, on ideas of firm exports from West Africa, the top grower, beliefs which were questioned by crop trader Olam International.

The Singapore-based group forecast that world cocoa output in 2011-12 will fall some 100,000 tonnes short of demand, saying data showing strong deliveries of beans to ports in top producer Ivory Coast are down largely to stocks left over from last year, when civil war disrupted trade.

London cocoa for March also rebounded from a three-year low to end up 5.8% at £1,419 a tonne.

The rebounds were seen being supercharged by a wave of short-covering by investors who profited from the bean's march south from summer highs above £2,000 a tonne in London and well above $3,000 a tonne in New York.

'Hard to be positive'

Sure, Chicago futures could hardly keep up with that, but did better than most other risk assets.


were the best performer among the big three, adding 0.4% to $11.12 a bushel for January delivery, although many investors will have been cheered by a 1.6% jump to $3.06 ¾ a bushel in


, for March, a grain often considered a leading indicator.

Soybeans' firmness was attributed largely to rumours of Chinese buying, with the country said to have purchased two cargoes on Friday, and to worries about dryness in South America, especially Argentina.

The focus on China was only enhanced by weekend data showing soybean imports rising last month to 5.7m tonnes, easing concerns over demand from the world's top buyer.

Note that the oilseed's revival came despite Friday's bearish USDA estimates, which had ramifications in broker forecasts, with Tenco plugging in a soybean carryout for 2012-13 of 308m bushels.

"Over the weekend private forecasts upped ending stocks [estimates]," broker US Commodities said.

"It is hard to be positive the grains with ending stocks in the US and world on the rise."

'Export inspections solid'



nearly managed a positive close too, ending but 0.25 cents lower at $5.94 a bushel, up $0.10 from its intraday low.

The South America dryness worries helped here too, as did data showing US exports, as measured by cargo inspections, firm at 35.7m bushels.

"Export inspections were solid, which prompted some buying," Mr Holaday said.

Russia wheat price cuts?

The buying wasn't strong enough to help wheat end higher, with the March lot closing down 0.3% at $5.94 ¼ a bushel - its premium over corn sliced to the minimum.

That was with Russian talk of cutting wheat prices to regain competitiveness lost to Europe and, in particular, Argentina.

Still, "Given the replacement costs, I would be surprised if they can be much more aggressive than they have been", Benson Quinn Commodities said.

Domestic wheat prices in Russia are being supported as merchants have to look further and further afield to find supplies.

Furthermore, many analysts have doubts about the USDA's cut on Friday to hopes for US exports of the grain in 2011-12.

Cotton snaps

Back to soft commodities, and New York raw


managed to do better than the average commodity, if closing down 0.5% at 23.29 cents a pound for March delivery.

"With excellent crops in Europe, Russia, Thailand and India adding to supply, it will be difficult for sugar to make any headway on the upside in the near term," Nick Penney at Sucden Financial said.

"The end user is confident of supply in the first half of 2012 so is not in any hurry [to buy]."

But New York


– a non-food farm commodity - plunged 3.6% to 87.16 cents a pound for March delivery, the lowest close for a spot contract since August last year, as investors took an increasingly bearish view of Friday's upgrade to world stocks.

"Lower global demand has more than offset the smaller than expected US production, resulting a sharp increase in global stocks. World cotton use is now forecast to fall 2.5% year-on-year in 2011-12," Luke Mathews at Commonwealth Bank of Australia noted.


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