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Evening markets: cocoa stumbles, as grains regain their feet

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The world has at least two things in common now with July 2009.

The first is Michael Jackson making news, last time with his huge memorial service, and this time with the trial of his doctor.

A second is that it was in July two years ago that New York's spot

cocoa

contract last stood at $2,555 a tonne, as it touched on Monday, before recovering some ground to close at $2,557 a tonne, for December delivery, down 1.3%.

London's December lot also wet a two-year low, of £1,687 a tonne for December, closing £10 better, down 0.7% on the day.

The moves were a disappointment to some, such as trader Jurgens Bauer.

"Cocoa, looks like it is way oversold and a strong candidate for a bottom to be established," he said earlier in the day.

"The market does seem as if it is trying to bottom. So, accumulating long positions for any contrarian seems worth a shot."

Liffe position report

As for the fundamentals which are fuelling cocoa's decline, the idea of another strong West African crop prompting production far in excess of demand in 2011-12, "if I read one more news report of the surplus of cocoa I might just pull my few remaining hairs out", Mr Bauer said.

(In which case he might be wise to keep away from the wires, which bore further reports of strong Ghana and Ivory Coast crops in 2010-11, with the idea that in the latter country 2011-12 exports might start as strong as last time.)

As a further downer, the first report from NYSE Liffe on investors' positions, the equivalent of the US Commodity Futures Trading Commission's commitment of traders report, showed speculators raising their net short position in cocoa to 5,688 lots, from 1,460 contracts the previous week.

(The commitment of traders report itself showed a rise in speculators' net short positions in New York too.)

Risk off

And beyond all that, it was a risk-off day, as Greece cast a pall over markets by admitting it was likely to miss targets for cutting its budget deficit.

Frankfurt's Dax

share

index shed 2.3%, with London's FTSE 100 index finishing 1.0% lower, and the Dow Jones Industrial Average down 1.7% in late deals.

The

dollar

rose, a healthy 1.1% against a basket of currencies. (Unhealthy for commodity prices, in making dollar-denominated raw materials appear more expensive to buyers in other currencies.)

Brent

crude

stood 1.5% lower at $101.22 a barrel, with the average commodity losing 0.6%, according to the CRB index.

Seasonal low?

A number of agricultural commodities shared with cocoa did even worse, such as

coffee

, which, for December delivery, ended down 2.4% at 223.45 cents a pound in New York, the lowest for a spot contract in 2011.

"For the coming week, am looking for New York [coffee] to prove that a seasonal low is occurring," Mr Bauer said.

"But remember, it is hard to turn around when the gravity of the macro markets is dragging you down."

Besides the market continued to feel the pressure of rains in Brazil, promoting flowering, and the prospect of a bumper crop of Vietnamese robusta coffee.

Bears rule

And

cotton

fell 1.0% to 99.21 cents a pound in New York for December delivery, performing in line with weakening global economic sentiment, as befits a farm commodity which, being non-food, is more exposed to industrial welfare.

Upbeat opinion on cotton futures, "based on the percentage of bullish market letters, has been a steady decline for weeks and now shows less than one-third of the pundits are bullish", Louisiana-based analyst Mike Stevens said.

"Speculative selling into resting trade buying been the case the last two weeks and today appears no different."

'Provides value'

There were winners in the agricultural commodities complex, but they were weighted towards the grains, with

livestock

futures, sector darlings last week, proving a bit of a mixed bag.

Indeed, there appears to be a somewhat contrary thing going on between

corn

and

lean hogs

, which might be expected given that falling corn prices = higher hog profits = greater demand for the animals, and vice versa.

Even a no-change close for December corn in Chicago, at $5.92 ½ a bushel, was enough to help take the steam out of Chicago hogs, which for December fall 1.3% to 86.70 cents a pound, with profit-taking and a slight turndown in pork prices cited as negatives.

Corn's performance was, however, viewed more positively by analysts, being viewed as a sign - after a fall of 6% in the last session, and of more than $1.50 a bushel over the last month - that it may have factored in enough discount to lure buyers.

"Corn has reached levels that provide value," Darrell Holaday at Country Futures said.

"It has reached price levels where large numbers of different users can make money owning at these levels. For example, this will likely prompt a move back to year ago levels in the poultry industry."

Harvests underestimated?

It came too in the face of continued puzzlement at Friday's USDA stocks data, showing higher-than-expected stocks of both corn and

wheat

– rather than substitution - with a growing idea that the extra supplies are down to bigger harvests.

"The only possible explanation seems to be USDA understated 2010-11 corn production and possibly 2011-12 hard red winter wheat production," Benson Quinn Commodities said.

Furthermore, weather looks to remain good for farmers – dry for the US corn and soybean harvest, but potentially wetter in more southerly areas which have a lot of row crop already in the silos, and need rain for autumn sowings.

"The forecast for the Plains is pointing to better chances for rain at the end of the week," Mr Holaday said.

It was enough to keep Kansas hard red winter wheat for December in check, down 0.3% at $7.02 a bushel, but failed to prevent bargain hunting helping Chicago soft red winter wheat for December gain 1.7% to $6.19 ½ a bushel.

'Farmer selling slow'

In Europe, Chicago's recovery helped Paris wheat for November close up 1.0% at E183.50 a tonne, shrugging off a one-year low for a spot contract reached earlier.

London wheat was not to lucky, closing down 1.6% at £148.25 a tonne, with speculators raising their short positions here too, according to the Liffe report, if to a modest 503 lots, from 278 lots the previous week.

"With November London wheat futures now over £50 a tonne off the top, and farmer selling slow, the market can and will continue to move with little first-hand selling," was how the UK grain arm of a major European commodities house saw things.

Back in Chicago,

soybeans

dipped 0.3% to $11.77 ½ a bushel for November delivery.

By Agrimoney.com

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