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Evening markets: euro jitters keep a lid on crop futures

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It wasn't all doom and gloom. But many farm commodities found headway hard to nail down on Friday, as the eurozone debt crisis appeared to be moving towards a new horizon – Italy – besides the latest shenanigans in Greece, which may see a new government.

The Italy question was raised again when German Chancellor Angela Merkel doubted the appetite among G20 nations to back Europe's financial stability fund, raising doubts over its ability to support a debt crisis in a bigger country – with Italy seen as a prime candidate as next in line.

Yields on Italian 10-year bonds set a fresh euro-era record of 6.4% as investors, in essence, demanded more payment to stick around.

'Constantly-moving exchange rates intervene'

Stock

markets struggled, despite slightly better-than-expected US jobs data, with Frankfurt shares closing down 2.7%, and Wall Street stocks down 1.0% in late deals.

The

dollar

added 0.4%

as investors flocked to a favoured safe haven, in turn lowering the affordability to buyers in other currencies of dollar-denominated assets such as many commodities.

Besides, the very volatility of currencies is having a negative impact on farm commodity markets, according to the UK grain arm of one of the world's biggest commodities houses.

"Even where some buying interest does develop, and here we are particularly thinking about the export market, the constantly-moving exchange rate tends to intervene just as buyer and seller are getting close to a deal," the merchant said.

Coffee revives

Against that background, a slight rise in commodities, even of 0.1% according to the CRB index, was something of an achievement.

But they had an extra help from the discovery of the $700m missing from bankrupt MF Global at JPMorganChase, which seized many of the broker's accounts when it filed for Chapter 11.

And there was some positive fundamental news, such as in

coffee

, where Colombia acknowledged it may hit its 2011 coffee production target of 9m bags, thanks to heavy rains and damage from roya fungus.

And Colombia is the "key variable" for the world coffee market, broker Marex Spectron said with other major origins such as Brazil looking more predictable.

New York coffee for December gained 1.5% to 231.05 cents a pound.

Cotton

gained as well, adding 0.6% to 98.74 cents a pound, continuing to gain succour from a second week of decent US exports – enough succour, anyway, to bounce off a technical floor and stay within its trading range.

A 0.6% rise to 20,374 yuan a tonne in May cotton the Zhengzhou exchange in China, the fibre's top producer, consumer and importer, helped too.

'Strong basis'

Chicago

corn

was a winner, gaining 0.3% to $6.55 ¾ a bushel for December delivery on signs of strong US cash markets, being supported by firm demand from ethanol plants seeking tomake the most of tax perks likely to expire at the close of the year.

"Corn basis levels continue to carve out new highs. The strength of the ethanol margins and the extreme shortage of grain to the south just continues to push basis levels higher," Darrell Holaday at Country Futures said.

US Commodities added: "Ethanol futures are near the highs which is supporting the corn market. The producer selling is light."

Cash corn prices are also high in China, the second-ranked grower and user of the grain, according to market chatter.

"Talk has corn basis on the rise during harvest as feeders grow concerned that current stocks will not suffice for the winter," GrainAnalyst trader Matthew Pierce said.

'Fierce competition'

But

wheat

found corn's strength difficult to hold. While Chicago's December contract closed up 0.1% at $6.36 ¾ a bushel, and some 2% above its intraday low, the March contract fell 0.6% to $6.64 ½ a bushel.

It looked like technical factors were at work, and potentially the closing of some of the many short positions on Chicago wheat ahead of a key US Department of Agriculture report due on Wednesday.

Kansas hard red winter wheat for December dropped 0.3% to $7.18 a bushel, depressed by talk of rains to help drought-stricken crops on the US southern Plains.

And European contracts were mixed too. Paris wheat for November closed up 0.9% at E195.50 a tonne, helped by a struggling euro.

But London feed wheat for May, the best-traded lot, shed 0.5% to £154.90 a tonne, amid talk of growing competition in the European feed market from the likes of the Baltic countries, Poland and Hungary.

"Sales of feed wheat exports continue to be made but the competition is getting increasingly fierce," the UK grain merchant said.

China hopes dented

And

soybeans

were plain negative, dropping 0.6% to $12.12 ½ a bushel for November and by 0.5% to $12.21 a bushel for January delivery.

While there was continued talk of Chinese buying it was dashed by a dearth of confirmation of orders from the US.

"China did buy 60,000 tonnes of soyoil from Brazil," Mr Holaday noted.

And as Benson Quinn Commodities noted, "the window for the US to take the lead on soybean export business is narrowing", before the next South American crop comes onstream early in 2012.

Softer softs

Among other farm commodities ending lower were raw

sugar

, which fell 0.08 cents to 25.57 cents a pound in New York for March delivery, with broader economic fears taking precedence over a downgrade by Societe Generale to estimate for the world surplus of the sweetener, by 1.2m tonnes to 3.1m tonnes.

And New York

cocoa

for December dropped a further 0.9% to $2,697 a tonne, hurt by continuing concerns for the impact of Ivory Coast's new regulator on prices, in holding a definite selling mandate.

The March contract did better, dropping 0.3% to $2,731 a tonne, helped by the roll of investors from near to further away lots so as not to get risk getting left with illiquid contract, and get ensnared in the expiry process and physical delivery.

By Agrimoney.com

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