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Evening markets: falling tide exposes crop price landmarks

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So there's a bag of


tumbling from the skies, and a bag of


. Which one do you catch?

Most investors opted for the former on Tuesday.

The trauma of a tumbling market, weakened by a worsening in Japan's nuclear crisis, poor results from Alcoa to kick-off of the US corporate results season, and, for commodities, a downbeat Goldman report, highlighted which grain it was that investors really prized.

Both corn and wheat plunged. But corn less so, backed by the prospect of the US ending 2010-11 with inventories equivalent to less than three weeks of consumption, compared to four months for wheat.

Indeed, for a while, it gained a premium over wheat in Chicago for the first time since 1996, although the grains had reinverted themselves back to their customary order by the close.

That said, Chicago wheat, closing at $7.59 ½ a bushel for May, up 4.9%, ended just 7.0 cents above the May corn lot, which lost 3.0% to $7.52 ½ a bushel.

At the start of the year, wheat's premium stood at more than $1.60 a bushel.

Talk vs reality

Not, of course, that all is well in the wheat camp either, looking towards the next US harvest, with data overnight revealing a further decline in the condition of hard red winter wheat crops.

While there is still "talk of moisture in the southern hard red winter wheat areas, there is very little confidence in those forecasts", Darrell Holaday at Country Futures said.

Nor is all well in other major wheat producing nations, with "dry wheat concerns continuing in Western Europe, and China's northern wheat belt", US Commodities said.

Nor, back, in the US, is all looking hunky dory for spring-sown crops either,

"The forecast for the Midwest and Northern Plains remains abnormally wet and cold slowing spring planting progress," Benson Quinn Commodities said, noting that progress on corn sowings, as revealed in the overnight US Department of Agriculture report, 3% complete, below market forecasts.

Fundamental question

Indeed, many questioned the real rationale for a turnaround in agricultural prices at this stage.

"There are no real fundamental changes," Mr Holaday said.

At North America Risk Management Services, Jerry Gidel said: "Fundamentals have not changed one bit", attributing the sell-off to funds treating commodities as a homogenous class – what would call the shotgun approach – rather than taking nuances into account, a rifle-shot strategy.

"We are at the mercy of chartists and trend followers. No-one is looking at the individual fundamentals," he said.

Margin pressure

That said, there were some fundamental reasons cited to get bearish on


, despite the oilseed remaining in Goldman Sachs' good books thanks to the prospect of weaker US sowings this spring.

A big South American harvest was one, with both Oil World and Soybean and Corn Advisor raising estimates for both Argentine and Brazilian crops.

Waning Chinese demand was another.

"The soybean crush market in China is negative," US Commodities said, adding that "Chinese officials have indicated that the Chinese imports of soybeans will be 53m tonnes vs 57m tonnes estimated by the USDA".

'Weak link'

The broker also pointed to the "collapse" of the premium of Chicago's old-crop July soybean contract over the new-crop November lot, "indicating soybean exports are probably 25m too high".

Benson Quinn chipped in: "Soybeans look to be the weak link in the ag complex till the oilseed crop gets closer to key planting timeframe in a couple more week."

The May lot actually ended 2.7% lower at $13.29 ¾ a bushel, with the July lot losing the same to $13.41 a bushel.

November soybeans closed down 2.4% at $13.44 ¼ a bushel – turning a miniscule discount to the July contract at the close of the last session into a small premium.

Fibre losses

The sell-off did for many soft commodities too, which had started off in a brighter mood, helped by the fall in the dollar to a 16-month low against a basket of currencies.

A weak greenback makes assets denominated in it more affordable to buyers in other currencies.


for May lost early gains to finish down 2.4% in New York at 199.73 cents a pound, only its second sub-200-cents close this month, despite an – OK not entirely bullish - upgrade from Standard Chartered.

The bank raised its forecast for the average cotton price this year to 166 cents a pound from 154 cents a pound, reflecting expectations of lower-than-expected US sowings this year, "but we continue to expect a downtrend in prices throughout the year", the bank said.

Backwardation turns to contango?

New York


lost early gains to close down 1.8% at 25.58 cents a pound for May, the weakest finish for a spot contract since October, as rumours of a failure in Indian deliveries faded, and investors looked at the potential for greater supplies ahead.

"As it stands, when the [May contract] expires we will almost have the end of our recent huge backwardations," (meaning near-term contracts trading well above further ahead ones), Thomas Kujawa at Sucden Financial said.

"And with an eye to Thai and Brazilian production, prospects of a contango", the opposite of backwardation, "as statistically we have a 'slight' surplus, and perhaps we will see this in the forward curve."

Bouncing beans


held up bulls' hopes among soft commodities, ending 1.0% higher at $3,053 a tonne for May delivery, as industry buyers took advantage of lower prices, following signs of resolution in Ivory Coast, to extend cover.

Standard Chartered actually lowered to $3,327 a tonne, from $3,725 a tonne, its forecast for average cocoa prices this year, reflecting better prospects for the world's top producing country.

"This is premised on an end to the political stand-off in Ivory Coast, although uncertainty persists," the bank said.


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