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Evening markets: crops rediscover defensive credentials

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Agricultural commodities rediscovered some of those defensive qualities that had seemed to have gone with the correlation between markets.

Historically, edible crops have been viewed as one of the better hedges against economic downturns, on the idea that people have to eat (with cotton and rubber viewed more as industrial commodities more prone to consumer sentiment).

While their recent performance may not have borne witness to such ideas, on Thursday they did manage a contrarian stance.

The prevailing wind was heading south, on weakened hopes for a substantial policy move on tacking the eurozone crisis to come out of the European summit, and on disappointment at comments by Mario Draghi, the new head of the European Central Bank.

Mr Draghi poured cold water on ideas that the bank would ramp up purchases of government bonds to support the credit market, either by itself or via the IMF.


fell, by 1.1% in London and more than 2% in Frankfurt and Paris, Brent


stood 1.3% lower in late deals, while the safe haven of the


bounced 0.5%, making dollar-denominated assets including commodities less affordable to buyers in other currencies.

It was little wonder that commodities as whole, as measured by the CRB index, dropped 0.7%.

Sugar sweetens

But many agricultural commodities did far better. Notably raw


, which soared 4.7% to 24.13 cents a pound in New York, for March delivery, in a rally which puzzled many observers, just as did the previous session's decline.

Certainly, fundamental supply and demand reasons were difficult to come by. Brazil's Conab crop bureau lowering its estimate for domestic sugar production, but to 36.88m tonnes, a figure above that of many other observers.

Sugar giant Cosan did come out with bullish talk, seeing support for sugar prices next year as Brazil "won't be able to supply the market in the way people are expecting". But that comment was made yesterday.

Still, other forces were at work in agricultural markets – not least improved sentiment for squaring positions with uncertainty around, and a key US Department of Agriculture crop report due on Friday too, let alone with concerns about lenders' willingness to keep bankrolling investors.

And, remembering the prevailing tone of recent markets, position closing means covering shorts, and upward price pressure.

'Position squaring'

"The spec trade is looking for reasons to cover shorts and book profits," Benson Quinn Commodities said earlier on.

"Given the impending results of the European Union meetings and the USDA report, the tone of the ag markets will likely favour more position squaring."

Which may have had a lot to do with Chicago


recovering most of its losses earlier to close down 0.6% at $5.97 a bushel for March delivery.


for January rebounded to end unchanged, at $11.32 ½ a bushel.



not just regained its losses, but ended up 1.3% at $6.00 ¼ a bushel.

'Much better number'

Still, corn had solid US weekly export data on its side, at 708,000 tonnes, more than twice some traders' expectations.

"This is still not a stout number, but a much better number," Darrell Holaday at Country Futures said, while US Commodities viewed the figure as "bullish".

In part, the increased figure was down to purchases from drought-hit Mexico, of 339,000 tonnes, of which many investors had some expectation.

But the data details also revealed some previously undetected sales to China – a sensitive point in Chicago, given the country's huge import potential if its domestic production doesn't accelerate fast.

"The breakdown included some corn sold to Chinas that the market was not aware of as they switched 175,000 tons from unknown," Mr Holaday said.

Weak wheat sales

Soybean sales were also good, at 795,600 tonnes, above market expectations.

And the oilseed received further bullish news too in a slight downgrade by Conab to its forecast for the domestic crop, despite the many reports of a strong start to the crop with La Nina-caused weather vagaries not seen kicking in too any real effect yet.

The number "was seen as supportive", Mr Holaday said.

But wheat exports, at 427,200 tonnes, fell below trade estimates, pitched at 450,000-650,000 tonnes.

While there was wheat bought on Thursday, and much of it, there was none confirmed from the US, whose prices are still seen as too high for many buyers.

Taiwan bought 75,000 tonnes of optional origin wheat, and Iraq bought 400,000 tonnes from Canada and, mostly (250,000 tonnes of it), Russia.


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