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Evening markets: crop futures hurt by Wall Street collapse

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Nightmare on Wall Street Part 10 (the number of trading days out of the last 12 that New York shares have fallen) had a leading role for agricultural commodities.

Sure, there was some support around for the idea that crop and livestock futures might continue to outperform, ie fall less quickly, than other risk assets, shielded by their defensive qualities – we always need to eat – besides the underlying tightness in supplies.

But farm commodities sustained painful losses nonetheless, with many shedding as much as, or more than, the average 2.8% decline in raw material prices (according to the CRB index) - if less than the 4.8% wound that Wall Street shares were nursing in late deals.

The major catalyst to all this, if a reminder is necessary, was Standard & Poor's downgrade late on Friday of America's credit rating, to AA+ from AAA, with a negative outlook (implying more cuts could be on their way), with worries about eurozone debt doing their bit too.

"The downgrade is the first ever downgrade of US credit ratings and has sent shock waves through the global markets as investors run to safe haven assets such as gold," Benson Quinn Commodities noted.

Or as Jurgens Bauer, at PitGuru, put it: "The turmoil facing traders is obvious. The environment is ripe with margin calls and as such for risk to be taken off the table."

'Concern is on the demand side'

And, however relatively safe crops may appear, their credentials are deeply undermined by, say, the 6.8% slump in prices of West Texas Intermediate

crude

in late deals to just over $81 a barrel.

Lower oil prices mean lower prices of ethanol too, as made from

corn

,

sugar

and, less so,

wheat

.

"The concern is on the demand side of the equation today, not the supply side," Darrell Holaday at Country Futures said.

"Today's action should remind all that the ethanol industry drives corn use and if you believe that crude oil will go to $70 and it will not hurt the value of corn, no matter what the size of the US crop" -well, "redo your analysis".

Disappointing exports

And even if external markets were in better condition, there was enough bad karma around to make life difficult for farm commodities.

In the US, weekly export inspections were disappointing for corn, at 31.7m bushels, and

soybeans

, at 5.6m bushels, both in line with the previous week's figures, and confirming "the fact that corn and soybean stocks at the end of this crop year will be higher than the current USDA estimate", Mr Holaday said.

They took the shine off the announcement of a 120,000-tonne purchase by Egypt of US corn.

'Heatwave has broken'

Furthermore, weather was hardly so threatening.

"The heatwave for now has broken," US Commodities said.

Benson Quinn said: "Weather remains favourable with cooler temperatures moving into the northern Plains and pushing rains into the drier regions of the central US."

The outlook appears favourable "to soybeans with crop heading into key pod-filling phase over next couple weeks".

Soybeans for November dipped 1.8% to $13.11 ½ a bushel, ending pretty much at the day low and with its weakest finish since late June, while corn for December shed 2.4% to $6.86 a bushel.

... but more heat to come?

Wheat in terms of the days' fundamental terms had more going for it, with US export sales of 25.2m tones, up more than 50% week on week, and 100,000 tonnes of hard red winter (the type traded in Kansas) sold to an unknown destination.

Furthermore, US Commodities noted that the extended weather forecast "places a ridge in the southern Plains and western Midwest after August 20", a factor "of most concern to the planting of hard red winter wheat".

Still, with corn, the main prop to the grain complex, failing, wheat, whose supplies on a global scale are pretty abundant, closed down 3.3% at $6.56 ½ a bushel for September delivery in Chicago.

'Little else supporting wheat'

Kansas wheat dipped nearly as much, ending down 3.2% at $7.55 ¼ a bushel for September, despite the export order.

And European wheats fell too.

Sure rains "continued to hinder cutting across Germany, France, Poland and the Czech Republic over the weekend and more rain is forecast for the coming three days", Jaime Nolan at FCStone's Dublin office said.

But, "other than quality concerns, there is little else supporting current wheat values" than corn, he noted.

As an extra hurdle to bulls, Strategie Grains upped its estimate for the UK wheat crop to 15.08m tonnes, after better-than-expected results from the early harvest.

Paris wheat for November shed 2.7% to E190.25 a tonne, while London's November lot fell 1.5% to £157.25 a tonne.

Softs soft

Among soft commodities, it was little surprise that

cotton

was notably weak, shedding 3.9% to 97.72 cents a pound.

The fibre, as a non-food farm commodity, lacks the "everyone has to eat" defence, and, with clothing as more of a discretionary purchase, is seen as more susceptible to changes in economic outlook.

Even

coffee

, which had fundamental support from frost in Minas Gerais, could not dodge the bullet, closing down 1.6% at 234.20 cents a pound in New York for September delivery, the lowest close for a spot contract since January.

Also in New York, raw

sugar

at least managed a bit of a bounce from an intraday low of 26.38 cents a pound, but only to 26.98 cents a pound for October, down 2.0% on the day, and the weakest finish for a spot lot since late June.

By Agrimoney.com

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