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Evening markets: crop futures suffer as funds turn tail

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Watch out below.

Earlier this month, Chicago crops stood firm even as other commodities wavered. But on Monday, the trend reversed.

The average commodity rose 0.5% according to the CRB index, helped by a 0.4% dip in the


. (A cheaper dollar makes dollar-denominated assets such as many raw materials more competitive as exports.)

However, Chicago crops far underperformed, with


for May falling 2.9% to $6.52 ¼ a bushel, and even


, a firm fund favourite over the past seven weeks, turning tail.

Rain on the Plains

Indeed, funds were seen as a major reason behind Monday's sell-off.

There was some price negative news on fundamentals around, with Russia saying it will not restrict grain exports for the rest of 2011-12, taking even an implied ceiling at about 27m tonnes off the cards.

"We have every opportunity to carry further grain exports this year without any restrictions," Viktor Zubkov, Russian deputy prime minister, said.

Furthermore, dry winter wheat areas in the southern US have being receiving rain.

"Strong thunderstorms erupted early this morning in the southwest Great Plains bringing welcome heavy rain to wheat in southwest Kansas, western Oklahoma and the Texas panhandle," Gail Martell at Martell Crop Projections said.

And weekly US exports, as measured by cargo inspections, were weak too, at 21.0m bushels, behind expectations of a figure above 25m bushels.

… but frost too

That said, the news flow was not all one-way. The southern Plains are due a frost too, if not a damaging one

"Wheat jointing is suspected to be in the early stages, so frost may merely burn leaves, not causing any permanent damage," Ms Martell said, while adding that the freeze was a reminder of a crop some three-to-four weeks ahead in development.

"If the weather pattern suddenly turns colder, there may be a chance for significant damage yet this spring."

Furthermore, Morocco suspended import duties on barley until the end of the year in an effort to bolster supplies, a reminder of the drought hitting parts of North Africa and the European Union, as highlighted by a report by Offre Demande Agricole, the influential analysis group, out late on Friday.

'Pressure from funds'

But investors were in selling mood.

"Today markets have drifted more on pressure from funds and some profit-taking rather than anything fundamental that has changed," grain traders at a major EU commodities house said.

At Iowa-based Market 1, Mike Mawdsley said: "Russia said it will not limit exports this summer - funds sold."

The sell-off hit prices in other markets too, with Kansas wheat for May ending down 2.0% at $6.91 ½ a bushel, and Minneapolis wheat for May closing 1.9% down at $8.07 a bushel.

In Europe, Paris wheat for May lost 1.5% to finish at E210.50 a tonne, with the London May contract shedding 0.7% to £171.25 a tonne

'More typical of June'

That did few favours for


, which had its own headwinds from poor US export data - with cargo inspections of 23.2m bushels, well below forecasts of 30m bushels plus – and warm spring weather at the start of US sowing season.

"Daily mean temperatures are running 30 degrees Fahrenheit above normal, more typical of early June," Ms Martell said.

"Already, soil temperatures are above the 50 degrees Fahrenheit threshold for corn germination, even four-to-16 inches deep."

Not that an early start to sowing necessarily means higher yields, the University of Illinois pointed out…

Still, Chicago's May contract dropped 1.4% to $6.63 ½ a bushel.

More bullets?


at least had the support of an Argentine harvest which, besides being delayed by (far-too-late) rains, is producing disappointing results in its early days.

"[Argentine] yields are at an average of 1.70 tonnes per hectare, lower than expected by the producers," FCStone's Brazilian office said.

With the Argentine and Brazilian crops between them losing some 12m tonnes to drought, and US sowings expected to be "stable" this year rather than increase in response to the shortfall, "these factors can positively impact prices in the medium term", FCStone added.

Still, the oilseed also had a huge funds' huge net long position in Chicago futures and options to deal with, as revealed in regulatory data, and raising questions about the appetite for further buying.

Benson Quinn Commodities said: "The trade is questioning whether or not the funds still have more bullets to add to length," with two key US Department of Agriculture reports due on March 30 adding an air of market uncertainty.

Chicago soybeans for May closed down 0.6% at $13.66 ½ a bushel


Softs harden


did better, in part because its place among investors is the opposite to soybeans – speculators have their largest net short for some five years.

The questions the extent of further selling pressure, and leaves the fibre open to short covering.

A rise of 1.8% to 89.08 cents in New York's May contract was also helped by technical factors, with the contract rising back through its nine-day moving average.

New York


for May added 0.6% to 183.50 cents a pound, after regulatory data revealed speculators had a historically-large net short position in the bean too.


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