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Evening markets: coffee soars while grains lose their bottle

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Coffee

made gains and held on to them. Grains couldn't.

That was the basis of the story of Friday, in which external markets provided a – generally - helpful backdrop, with

shares

rising and the

dollar

falling 0.7% against a basket of currencies, so making dollar-denominated assets, such as many commodities, more appealing as exports.

But crops needed more than this to keep up with the share rally, which was attributed to (more) hopes for a resolution to the eurozone crisis.

Coffee stirred

Coffee

had extra reasons enough to soar 5.7% to 244.85 cents a pound in New York, for December delivery.

Small exchange-certified stocks helped, of 1.34m bags, the lowest in more than a decade (since February 2000), signalling a squeeze on supplies actually there to meet buyers of futures contracts.

And coffee producers were hardly rushing to alleviate the situation by selling into the rally, traders said.

'Threaten the primary coffee harvest'

Why should they, with rains in Colombia not only causing short-term logistical difficulties but appearing to confirm fears that the La Nina weather pattern may not turn out so benign as many observers have hoped.

It was not just US meteorologists who have confirmed a strengthening La Nina, which can play havoc with South American weather, but Colombian peers too, who have forecast rains up to 30% above average in the last quarter of 2011.

This would "threaten the primary coffee harvest, which flowers during October", Lynette Tan at Phillip Futures noted.

Colombia is the second-ranked producer, after Brazil, of the arabica beans traded in New York, and has already suffered a succession of weather-hit seasons.

'Signal of caution'

But grains lacked such a compelling - and solid - story.

Indeed, La Nina concerns have not spread to some other agricultural commodities in which South America is a big producer, such as

soybeans

.

"A lack of weather problems in South America offers soybean bulls a signal of caution," GrainAnalyst trader Matthew Pierce said.

"As their crops stabilise, they will flood the market with old crop soybeans eating away at already flagging US demand."

November soybeans closed down 1.0% at $12.12 ¼ a bushel in Chicago, at pretty much their day low, and completing a week without a winning close.

China rumours, again…

Furthermore, one of their big props to earlier price rises (November soybeans stood 1.7% higher earlier on) was speculation of Chinese imports - speculation which, as recent history has shown, is mercurial in its favours.

The rumours were there alright, helping corn touch an October high of $6.55 ½ a bushel, a gain of 2.5%.

"Corn made a new high for the week in night trade on talk of more China business," Paul Georgy at Allendale said.

Rival broker US Commodities said: "There is speculation that China has booked more corn than the US Department of Agriculture has estimated for their 2011-12 corn exports. This has fuelled more investor money into grain markets."

Corn vs wheat

But was this trade really new? Had analysts already factored it in?

The picture was further confused by talk that China had bought 1m tonnes of Australian

wheat

, potentially feed wheat.

That could be bullish for corn prices in highlighting China's need for grains to keep its hog population fed. "It adds fuel to the idea that they need feed," Darrell Holaday at Country Futures said.

Or it might not. "Talk of recent Chinese purchases of Australian feed wheat has many in the trade speculating that some of the potential US corn business to China is being covered with feed wheat," Benson Quinn said.

"These concerns are worth noting as they are likely buying feed wheat at a $60-70 a tonne discount to US corn free on board."

'Hit from every angle'

Whatever, wheat emerged slightly better out of the confusion. While December corn ended 0.25 cents lower at $6.49 ¼ a bushel in Chicago, December wheat added 0.2% to $$6.32 a bushel.

And Chicago wheat's, relative, resilience did not look down to the worsening prospects for the hard red winter wheat crop.

Kansas hard red winter wheat for December ended down 0.3% at $7.32 a bushel despite frost, which could slow pre-winter development earlier than farmers would like, and waning ideas for late October rains, much needed after months of drought in the US South.

"Producers in this region are getting hit from every angle," Mr Pierce said.

"Current market talk has hard red winter wheat abandonment 27% higher than last year. This promotes a seriously-bullish bias in Kansas versus Chicago."

Higher ground

US wheat's late slide came too late to bring down European contracts, with Paris wheat for November closing up 1.2% at E187.75 a tonne, and London wheat up 0.7% at £147.75 a tonne.

Elsewhere,

cocoa

too managed, just, to hold on to gains, ending up 0.2% at $2,566 a tonne in New York for December delivery, helped by data overnight showing the North American cocoa grind up 3.4% in the July-to-September quarter, slightly better than the market had expected.

Raw

sugar

was less resilient, giving back early gains to close down 1.2% at 26.48 cents a pound in New York, for March delivery.

By Agrimoney.com

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