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Evening markets: crop downgrades help soy survive selldown

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It wasn't just the Federal Reserve comments, appearing to rule out further US monetary easing, which caught out markets on Wednesday.

Investors had a disappointing Spanish bond auction to deal with too, with the country, fresh from the release of hefty budget cuts which have stirred up popular unease, selling E2.6bn of debt, at the low end of a targeted range.

Risk assets were most definitely out of favour, with shares shedding 2.3% in London, 2.8% in Frankfurt and standing down 1.1% on Wall Street in late deals.

"There has been a meltdown in the outside markets," Darrell Holaday at Country Futures said.

The safe haven of the

dollar

added 0.3%, adding further pressure to dollar denominated assets, such as many commodities.

The CRB index dropped 1.8%, and some agricultural commodities fared worse.

Softer softs

New York

cotton

, as ever alert to changes in broader economic thinking, plunged 3.6% to 89.32 cents a pound for May against a backdrop of demand concerns after the end of China's stockpiling programme.

Technicals did little to help, with a succession of moving averages failing to hold, lastly the 20-day at 90.03 cents a pound, leaving the contract below all its major moving average lines.

Indeed, the risk-off feel tended to add particular pressure to those agricultural commodities, such as cotton and cocoa, in which speculators had been closing net short positions.

New York

cocoa

dropped 2.8% to $2,083 a tonne for May, as market mood made being short so much more comfortable.

'Weather negative to wheat'

Similarly, in Chicago, it was

wheat

, in which speculators had been closing short positions, which fared worst, tumbling 2.9% to finish at $6.39 ½ a bushel for May delivery.

Fundamentals hardly helped, with some dry parts of the European Union receiving rainfall (which UK-based Agrimoney.com can vouch for) and set for more.

"Forecasts for the EU offer better chances for rain," Benson Quinn Commodities said.

Furthermore, dry areas of the southern US got more precipitation too.

"The hard red winter wheat growing regions have once again received rains with some of the drier regions receiving somewhere in the neighbourhood of 1 inch of rain," the broker said.

FCStone said: "Weather in the US is negative to wheat. More rains on the Plains, and more to come."

'Need to add acreage'

OK, there was a sign of demand at these lower prices, with Egypt, the world's top wheat buyer, launching a tender, and giving some support to Commerzbank ideas that wheat prices have pretty much fallen enough.

However, Egypt appeared after the close of markets, too late to have any impact on preventing Kansas hard red winter wheat closing down 3.0% at $6.69 ½ a bushel.

Even Minneapolis spring wheat dropped, by 1.1% to $8.45 ¾ a bushel for May, despite weak sowings prospects highlighted by US Department of Agriculture data on Friday, and concerns that the grain may not be able to make up ground.

"Hard red spring wheat plantings need to add acreage, but that's not likely as other crops continue to keep their advantage at this point - especially true in the wake of insurance values," FCStone said.

In Europe, Paris wheat for May fell 1.1% to E209.25 a tonne, while London wheat dropped 1.5% to £169.50 a tonne.

'Supplies will remain very tight'

Back in Chicago, wheat's poor performance was a drag on

corn

, which also felt pressure from data showing a further decline in US ethanol production, meaning plants are using up less of the grain.

US ethanol output tumbled 16,000 barrels a day to 873,000 barrels a day last week, although seasonal plant shutdowns were blamed in part for the decline.

There was some residual support around for old crop corn from Friday's USDA data showing domestic inventories of the grain weaker than had been expected as of the start of March.

"Traders are convinced the USDA will subtract the 150m bushel lost on the quarterly stocks data right off the ending stocks of 2011-12 corn," Paul Georgy said.

"We think it is unlikely that will happen but do agree old crop supplies will remain very tight until new crop is harvested."

Corn dropped, but by a more modest 0.2% for the May contract, which ended at $6.56 ¾ a bushel, reopening quite a premium over wheat.

'Buzz is about South America'

The new crop December corn lot also dropped by 0.2%, to finish at $5.44 ¼ a bushel, in line too with the new crop November

soybean

contract, which ended at $13.75 ½ a bushel.

That represented a change from the relentless upward path of the soybean: corn ratio in recent weeks, but reflected some ideas that soybeans may have won acreage for now.

"Given the recent sharp rise in soybean prices, US farmers may decide fairly spontaneously to plant more acreage with soybeans than assumed by the USDA," Commerzbank said.

It also meant new crop soybeans underperformed old crop, which added 0.2% for May delivery to close at $4.19 ½ a bushel, within an ace of a seven-month high, and helped by further downgrades to South American crops.

"It is the South America short crop that is driving soybeans higher," US Commodities said, if voicing doubts about how much longer this theme will last.

"The buzz is about South America but this will soon end. South America is near fully dialled in."

By Agrimoney.com

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