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Evening markets: eurozone warnings put skids under grains

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Do ratings agencies ever do upgrades any more? Have they run out of stock?

It was Standard & Poor's turn on stage to wield the downgrade baton and knock the stuffing out of market sentiment.

The agency is to release a report saying that it is putting Australia, Finland, France, Germany, Luxembourg and the Netherlands on "creditwatch negative", meaning that a downgrade may follow from their AAA ratings. (There is a 50:50 chance of a downgrade by March.)

That put the skids under what had been not too dismal a day for Chicago grains, as an agreement between German Chancellor Angel Merkel and Nicolas Sarkozy, the French president, advocating stronger disciplines to support the euro bolstered market sentiment.

"It was all beer and skittles up to half an hour before the grains close," when the S&P news hit, Scott Briggs at Australia & New Zealand Bank said.

And that dashed any hope of a late recovery, in part through weakening the euro and strengthening the

dollar

, so weakening the competitiveness of dollar-denominated exports such as grains.

Rain on the Plains

Wheat

was among the worst affected in Chicago ending down 2.2% at $6.11 ½ a bushel for March delivery.

Not that the S&P news was the only depressant with, technically, a failure to top the last session's high of $6.32 a bushel (reaching $6.21 ¾ a bushel at the intraday high) a negative.

Fundamentally, the grain was dampened too by heavy rains in southern US districts where drought has been a setback to autumn-sown crops.

Over the Sunday-Monday period "there was an area of 2-4 inches of rains over north east Texas, all of Arkansas into far western Tennessee", with the potential for snow tonight, WxRisk.com said.

'Serious problem'

Furthermore, weekly US wheat export data, as measured by cargo inspections, were hardly bumper, at just under 14.5m bushels, down from 16.5m bushels a week before.

Corn's were better, at 38.5m bushels, up 2.5m bushels week on week, which was one reason for the grain to do relatively well, in ending down 0.7% at $5.91 a bushel.

But there were others too. Weather in Mexico, for instance.

There, "corn production is a serious problem with drought-like conditions dominating the current situation and forecast", GrainAnalyst trader Matthew Pierce said.

"This could increase Mexican imports by another 2m tonnes with this coming from nowhere else but the US."

And, on the domestic front, US Commodities noted that "corn has found continued support on the strong ethanol margins, at 85 cents a gallon, and profitable feeding margins".

Wasde ahead

Soybeans

also did relatively well, closing down 0.8% at $11.26 ¼ a bushel for January, gaining some lift from –disputed - ideas of South American weather problems to offset some of the crop's negatives flying around.

Negatives included poor US export data, of 31.6m bushels, down 10m bushels week on week.

Indeed, the poor pace of US shipments is expected by many analysts to be reflected in the next monthly US Department of Agriculture Wasde crop report, due on Friday.

The Wasde "will probably leave US ending stocks on corn and wheat unchanged but raise soybeans due to the slowdown in Chinese imports", US Commodities said.

Meanwhile, consultancy Celeres edged higher by 100,000 tonnes, to 75.6m tonnes, its forecast for the Brazilian soybean crop. The USDA has the harvest at 75.0m tonnes.

Chart signal

Soft commodities were spared the full effect of the S&P news by earlier closes, helping New York

coffee

for March soar 3.0% to 236.40 cents a pound.

Besides lingering concerns about Brazil's next crop, the world's biggest, and a strike in the country's biggest port, Santos, coffee gained technical help.

"Looking at the chart for March arabica, a firm support is established at the 225-cents-a-pound level as coffee price had tested the level five times in the last two months," Lynette Tan at Phillip Futures in Singapore said.

"In the near term, arabica could continue to trade range-bound between the 225 cents and 255 cents levels with macro concerns from the eurozone and growth in US dictating its price direction."

Sugar sweetens

The Santos strike idea helped sugar too, with Brazil being the top exporter of the sweetener.

New York raw

sugar

also gained support from ideas that more end-user demand may kick in, with holidays approaching.

The March lot added 2.7% to 24.08 cents a pound.

On the agenda

As for what's coming up, on the macro front, China may rise back up the agenda, with the standing of its equities near 18-month lows viewed by some as symptomatic of broader problems.

"Every man and his dog is calling the Chinese economy out on credit growth problems, asset bubble problems, etc," Mr Briggs said.

After the close of Chicago trading Egypt, the top wheat importer, announced its latest tender for the grain, with the result to be announced on Tuesday.

By Agrimoney.com

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