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Evening markets: crops poop party as funds retreat

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Grains softened in late US trade despite a continued weakening in the dollar which might typically be viewed as helpful to commodity prices.

Shares followed their role, jumping on both sides of the Atlantic in what has become a typical move when the dollar weakens, signalling growing appetite for risk.

Some other commodities did their bit too, such as gold, which hit a fresh record high of $1,173.50 an ounce.

A weaker greenback, which retreated back above $1.50 against the dollar, makes prices of dollar-denominated assets more attractive on export markets. Gold has the extra bonus of being perceived as a particularly effective hedge against currency devaluation.

'Animating the market'

But some other commodities refused to follow the script. Oil lost most of its earlier gains, standing just 0.3% higher at 20:00 GMT.

And food commodities weakened too – even soybeans, which has been the traders' darling of late on robust US export data.

The positive data stream continued on Monday, with Washington showing US export inspections at 73.8m bushels, way better than traders had expected.

(Wheat's inspections were in line, at 15.5m bushels, with corn's 25.6m bushels viewed a disappointment.)

"The soybean is again animating the market," Agritel, the Paris-based analysis group, said as the oilseed got off to strong start.

Fund u-turn

There were even a few residual concerns around about corn contamination by vomitoxin, a toxic fungal residue, which would signal greater demand for soy-based alternatives for feeding livestock.

"US corn is still grappling with high vomitoxin levels," Agritel said.

Farmers "could drop" distillers' grains, a by-product of corn in ethanol production, the consultancy added.

However, prices dropped off as fund buying dried up mid-session.

"Funds were early buyers of about 3,000 soybean contracts but they are now estimated sellers of 1,000 on the day, pushing soybeans lower for the session in the process," Vic Lespinasse, the analyst, said.

'Massive export sales problem'

It was "very unusual" that soybeans were, for a fifth successive day, moving in the same direction in the dollar, he added.

Chicago's January contract closed down 4 cents at $10.42 a bushel.

Still, however counterintuitive such a movement seems, that did not stop grains following suit. December corn ended down 3.75 cents at $3.87 ¼ a bushel, and wheat closed off 2.5 cents at $5.57 ¼ a bushel, from following.

And corn was surrounded by some prospective bullish news, over Mexico's drought which, according to Allendale, the Chicago broker, is the worst in 68 years.

"Corn imports for the 2009-10 marketing year could increase 20%," Allendale added.

"This could help, but not fix, the massive export sales problem the US has."

Coffee perks up

In Europe, the Chicago slide came too late to deny wheat a positive close in London, where the January contract ended up £1.25 at £108.00 a tonne.

In Paris, milling wheat for the same month finished E1.25 higher at E134.25 a tonne.

And some New York softs took a better view of the falling dollar, notably coffee, which closed up 1.65 cents at $1.3470 for March arabica beans.

Besides diminishing hopes for Brazil's 2010-11 crop, the crop is being boosted by an outbreak of kernel-eating broca worms in Colombia.


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