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Evening markets: drier SA outlook helps grains stand firm

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The removal of some moisture from the weather outlook for worryingly dry parts of South America enabled crops to resist somewhat further strength in the dollar.

The

dollar

added a further 0.4% against a basket of currencies, and hit a 16-month high against the euro, after official data showed a larger-than-expected rise in US non-farm payrolls last month, and a fall in the jobless rate to a three year low.

Indeed, faith in the world's top economy revived even as doubts grew over the eurozone, where the yield on Italian 10-year bonds rose further above the danger level of 7.0%.

The dynamics made dollar-denominated assets less competitive, even while improving prospects for euro shipments – as evidenced in France's biggest victory in nearly a year in an Egyptian grain tender.

'Much less rain'

Crude

felt the pressure, easing a touch, and providing an extra negative for crops, such as corn and sugar, used in making biofuels. Wall Street stocks edged lower too.

However, Chicago crops could, against these bearish forces, play the bullish card of dryness in South America which looks set to get less rain relief next week than had been thought.

The latest run of the GFS weather model, in the one-week timeframe, "has less rain for central and eastern Argentina when compared to what the GFS was showing yesterday", David Tolleris at WxRisk.com said.

"European model rainfall for next seven days also has much less rain than what the Thursday afternoon European model showed - only 50% coverage of 0.25-1.00 inches."

Informa downgrade

Benson Quinn Commodities said: "Although it is likely that rain events will take place, the overall bias for this region over the course of basically the next month is still hinting at below-normal precipitation and normal-to-slightly-above temperatures."

And this as the run of downgrades to South American crops continued.

Informa Economics cut its estimate for Argentine corn production by 3.0m tonnes to 24.0m tonnes, and for the soybean harvest by 2.0m tonnes to 51.0m tonnes.

Informa's forecast for Brazilian soybeans was reduced by 2m tonnes to 72m tonnes.

Problem 'not yet large enough'

OK, it was not all plan sailing for bulls, with Macquarie coming in with a relatively high estimate for Argentina corn of 25.6m tonnes, if a low figure for soybeans of 49.0m tonnes.

Brazil's soybean crop was pegged at 73.6m tonnes, above the Informa estimate, with the corn harvest seen reaching 60.0m tonnes.

And Macquarie raised doubts over whether such crops were low enough to warrant the demand rationing Chicago bulls are hoping for.

"We do currently believe the reduction in South American production as yet is not large enough to require the rationing of seaborne demand," the bank said.

"For this reason we expect prices of grains will fall back from the highs set in the coming months as we move into the second quarter of 2012, when we begin to receive the South American harvests onto the seaborne market."

'Inadequate snow cover'

But then nor did prices exactly zip away, with March soybeans easing 0.2% to $12.06 ¾ a bushel as of 18:05 GMT, with a little over an hour's trading to go, and March corn up 0.5% at $6.46 ½ a bushel.

Corn's strength gave a leg up to fellow grain

wheat

, now back at a notable discount, which added 0.1% to $6.30 ½ a bushel.

However it was not the only support helping wheat overcome the threat posed by a worsening technical picture, as detailed earlier.

Some North American winter wheat areas, notably the upper US Midwest and Canada, "are getting inadequate snow cover", leaving seedlings vulnerable to a deep frost, FCStone's European office noted.

Commerzbank said that in many parts of the US, "snow cover is still far too low.

"For the winter wheat already in the ground this means an increased frost risk as the thin snow cover cannot provide sufficient protection against cold.

"The lack of snow could also prove problematic for corn and soybeans because it may mean inadequate moisture in the soil when the snow melts in the spring.

Wheat league

Furthermore, while US wheat once against lost out in the latest Egyptian tender, it at least put in a good show, priced at $255.65 a tonne, below most Black Sea and French bids – ie, low enough to win, were it not for higher shipping costs across the Atlantic.

Kansas hard red winter added 0.3% to $6.88 a bushel.

Minneapolis, with the worst technical readings, performed worst, falling 1.0% to $8.10 ¼ a bushel for March delivery.

But none were a match for Paris wheat, which closed up 0.9% at E195.25 a tonne, helped by France's Egyptian tender win, besides further falls in the euro.

London wheat for May, the best-traded lot, gained 1.0% to £152.50 a tonne.

'Huge supply pressuring prices'

Among soft commodities, London robusta

coffee

threw in the towel, tumbling 3.0% to $1,720 a tonne for March delivery, the lowest close for a nearest-but-one contract since October 2010.

The contract has been pressed by prospects of elevated supplies coming out of Vietnam, the top grower.

Indeed, coffee bears have been "encouraged by speculation of Vietnam sale of robusta before Tet, the lunar new year festival", Lynette Tan at Phillip Futures said.

"There has been talks that due to the huge supply of robusta pressuring coffee prices in Vietnam, the robusta-producing country may introduce their own coffee stockpiling programme - but it seems nowhere in sight. This could trigger some selling pressure."

However, New York raw

sugar

stood 0.7% higher in late deals, at 23.29 cents a pound, helped by a waning in the talk of European cancellations of import tenders which fuelled a 5% collapse in prices in the last session.

By Agrimoney.com

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