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Evening markets: crops vacillate amid conflicting signals

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Turnaround Tuesday? Rather an twirly whirly one, with many farm commodities struggling to know which was up, and whether that was the way they wanted to go anyway.

The macroeconomic conditions did not help, with hope for a resolution to the latest Greek debt crisis, over agreeing a bailout package in return for further austerity measures, turning tepid later in the day.

That weakened the


, which had enjoyed a strong day, and helped the


recover ground, to stand 0.5% down against a basket of currencies as of 19:00 GMT.



struggled to decide where to go too, ending a fraction lower in Frankfurt and London, but a little higher in Paris.

Corn vs wheat

As for agricultural commodities, some signals were not that clear either.

Take UkrAgroConsult's latest update on Ukrainian crops, which cut by 800,000 tonnes to 13.7m tonnes the forecast for


production, after cold played on drought-tested winter crops, but said that would pave the way for higher


sowings – and lifted its forecast for grains overall.

The consultancy raised its estimate for the Ukraine grains harvest by 300,000 tonnes to 45m tonnes.

Relief, and no relief

Then there is the weather in South America.

Sure, Gail Martell at Martell Crop Projections said that "key indicators in the Pacific Ocean basin suggest pronounced weakening over the past month" of the La Nina blamed for dry conditions in Argentina and southern Brazil until lately, and heavy rains in central Brazil.

Indeed, "at the same time February rainfall has increased sharply in Argentina, where drought is typical weather with a La Nina in effect."

However, southern Brazil is still "coming under serious moisture stress with very little rainfall over the past four-to-six weeks", Mr Martell said.

"Crop prospects are worst in Rio Grande do Sul where hot, dry conditions have been very pronounced.

"Parana, a more important farm state, is also becoming seriously dry in the southwest third of the state. Crop production will be reduced."

Chinese purchases?

As for the prospects for Chinese


purchases from the US, Oil World talked them up, saying the severe drought damage in South America will raise China's dependence on US soybeans in 2012".

"Additional purchases [from the US] are very likely to be made in the next few weeks," the German-based analysis group said.

While Oil World received some support from Barclays Capital, which said it expected an "uptick" in Chinese purchases overall, other commentators took a different standpoint.

'Basis has peaked'

Benson Quinn Commodities, proposing that "global demand for ag products has hit a soft spot", said that "recent soybean purchases by China have increased that country's forward coverage considerably", implying doubts over future needs.

Rival broker US Commodities noted that "Chinese crush margins are in the red", also flagging the harvest of some 155m bushels of Brazilian soybeans so far.

"This has helped press the US Gulf basis 3-4 cents [a bushel] this week," US Commodities said.

Benson Quinn added: "Basis levels at global exports points seem to have peaked for the time being."

Report ahead

And overarching all this, of course, are the doubts about the US Department of Agriculture's next monthly Wasde crop report, due on Thursday, a key date in the farm commodities calendar.

On top of the agenda here will be the forecasts for South American crops, and any adjustments the USDA makes to account for the recent drought.

"Will the USDA lower the Argentina corn crop as much as the trade believes is lost? The trade feels it is not a question of if, but how much," Paul Georgy at Allendale said.

The upshot of all this was a wheat market which entered late Chicago deals down 0.3% at $6.66 ¾ a bushel, underperforming European contracts, which continued to get hope from the Ukraine wheat downgrade, continued fears of broader damage from the region's cold snap, and technical factors.

Paris wheat for May ended up 0.2% at E214.75 a tonne, with London's May contract gaining 0.9% to £170.00 a tonne.

'Margins deep in the red'

That was ahead of corn, which faces the extra setback of challenges to the ethanol producers who consume roughly 40% of the US harvest.

"Ethanol margins remain deep in the red. This could lead to a slowdown in corn ethanol consumption in the second half of the year," US Commodities said, also noting a decision by Archer Daniels Midland to close an ethanol plant in North Dakota in April.

"Ethanol storage is full," the broker added. Data last week showed US ethanol stocks at a record high.

Corn for March closed down 0.4% at $6.44 ¼ a bushel.

That left soybeans doing best, supported somewhat by Chinese purchasing hopes, and standing 0.5 cents lower at $12.31 ½ a bushel.

Smaller surplus

In soft commodities too, there were some difficult balances to be made, as in



On the more bullish side, "at the Dubai conference the headlines seem to be more focused on the size of the surplus next year, 2012-13, which analysts seem to be unanimously agreed will be much smaller due to increases in consumption", Thomas Kujawa at Sucden Financial said.

But more negative was a report that India has decided to permit a further 1m tonnes in sugar exports, although this had been expected by many investors.

New York raw sugar for March closed down 0.4% at 24.40 cents a pound.


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