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Evening markets: fortified dollar tramples crops

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A revived dollar walked all over crop prices, sending Chicago's big three down more than 3%, helping rice extend its losses to nearly 7% in two days and spiking a rally in softs too.

The dollar hit its highest for more than three months against the euro as encouraging comments from the Federal Reserve about the state of the US economy continued to send thoughts to the prospect of a US interest rate rise.

The euro fell more than 2 cents to $1.4305 at one point, a far cry from the $1.51 levels touched earlier this month.

With a strong dollar making US exports such as crops more expensive, this was bad news for food commodity prices, which fell pretty much across the board.

Even European grains, which in theory should gain heart from a sharply lower currency, were caught up in the severity of the sell-off.

Paris wheat for January ended down E1 at E128.00 a tonne, with London wheat for eth same month down £0.60 at £104.00.

But then, they also had a downbeat report from influential analysis group Strategie Grains to deal with, raising stocks estimates and forecasting a further rise in production next year.

'Life of its own'

Rough rice's 3.7% slump to $14.80 a hundredweight, its lowest close for six weeks, was not such a huge surprise, given the limit-down close on Wednesday, following a hike to Indian production data, which left some bearish business uncompleted.

However, the extent of the falls in Chicago's big three crops did appear to take some observers by surprise.

"This latest sell-off in the grains is due instead to ongoing speculative selling, sparked initially by the very strong dollar this morning but now taking on a life of its own," Victor Lespinasse, the GrainAnalyst.com analyst, as crops staged a weak close to the day's play.

And this after the day started with a reasonably upbeat set of US export sales data, with 1.23m tonnes of corn shifted and 935,000 tonnes of beans.

Wheat's export sales, at 345,000 tonnes were viewed as in line, although even this might have been a comfort on some days given the grain's weak performance in attracting foreign buyers so far.

Export worries

It looked a bit cheaper at the end of play, down 3.5% at $5.18 ½ a bushel, now down 11% from a high a month ago.

Corn, meanwhile, slid 3.2% to $3.97 a bushel, while January soybeans dipped 3.5% to $10.22 a bushel, the lowest for a near-term contract for six weeks, improving their credentials too at a critical time.

"Demand concerns linger for both commodities with China seen shifting to South American soybeans at any moment, especially with US ports at or near load-out capacity into mid-February, while the recent rally in corn is seen stifling demand," broker Benson Quinn Commodities said.

'Doubt in traders' minds'

There was some thought that the depth of the slide may have had something too to do with indirect effects on commodity markets of the dollar's rebound.

Notably, on the fund buying long-expected for January.

Broker US Commodities said: "Gold, silver and the energies are lower. The Asian and European stock markets are also lower.

"This puts doubt in traders' minds if the investment into commodities will be as large as expected in 2010.

"The new investments into commodities have been largely anticipated for weeks."

Day of two halves

Whatever, there wasn't that much buying pressure around in softs later on either – dollar or sterling denominated - despite a firm start.

London cocoa for May fell from a day high of £2,350 a tonne - the best for a nearest-but-one contract for 32 years - to £2,322 at the close, down £4 on the day.

March white sugar followed a similar pattern, ending down $3.20 at $663.00 a tonne after hitting a record high, for a spot lot, of $680.70 a tonne earlier.

At least, New York raw sugar for March managed a late recovery to edge up 0.5 cents at 26.43 cents a pound, its best since February 1981.

Other New York softs did less well, notably January arabica coffee beans, which ended down 2% at $1,345 a tonne.

By Agrimoney.com

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