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Evening markets: grains rally loses fizz amid market caution

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A determined rally ended up as rather a cautious one, leaving agricultural commodities higher pretty much across the board, but well below early highs.

Sugar

was one of the few crops which managed to finish close to its best of the day, in ending up 3.8% at 26.04 cents a pound in New York for October delivery and up 2.4% at $648.50 a tonne for London white sugar, for December.

Besides improved hopes for an end to the eurozone crisis, which lifted the breadth of risk assets, the sweetener was lifted by ideas that some of the supplies expected to be delivered against the October contract at expiry are illusory.

"It seems the Philippine sugars that were earlier said to have been available for delivery are now no longer there and sugars to be delivered will be Brazil Centre South or Thai," Nick Penney at Sucden Financial said.

And while data from Unica, the Brazilian cane industry body, showed a late-season revival in the country's output - to 2.7m tonnes in the first two weeks of September, a rise of 3.6% year on year – the market had been prepared for a relatively upbeat figure.

Luke Mathews, at Commonwealth Bank of Australia, overnight clocked talk that "Unica's bi-weekly crush report may show an increase in output as farmers attempt to capitalise in improved local prices, which have been buoyed by the slump in the Brazilian real".

Dollar tumbles

However, most other farm commodities shed early gains to underperform the average raw material, which added 2.7%, according to the CRB index.

Indeed, Brent

crude

, a guide for crops used in making biofuels, added 3% to climb back above $107 a barrel in late deals, while New York

copper

soared nearly 5%.

And, after all, the

dollar

tumbled more than 1% against a basket of currencies, a big help to dollar-denominated assets in making them cheaper as exports.

'Yields have improved'

There were some fundamental reasons for investors to be cautious, despite the better prevailing mood.

OK, data overnight showed farmers struggling a little with

corn

and

soybean

harvests, with the pace of both, at 15% complete and 5% complete respectively, lagging the average pace, and market expectations.

However, any harvest offers pressure in prices, in terms of raising supplies, and the proportion of corn rated in "good" or "excellent" condition improved, if only by 1 point to a poor 52%.

Besides, talk from both harvests is of yields above earlier expectations.

"Comments from the producer regarding corn yields remain better than expected yet are lower than last year," Benson Quinn Commodities said.

"Soybean yields have improved in some areas as harvest has progressed yet also remain below last year's levels."

'

No confirmation of sales'

Furthermore, the Chinese orders which many have been betting on for US corn once again failed to show, in US Department of Agriculture daily export data.

"Trade continues to talk about China interest for corn imports but so far there has been no confirmation of sales with seasonality and timing of domestic harvest most likely holding China out of the market till spring," Benson Quinn said.

There was also some caution around ahead of a USDA grain inventory report on Friday which is expected to show corn and

wheat

stocks sharply lower as of the start of the month than a year before, and soybeans some 50% higher (if at a still-modest 225m bushels).

"It only makes sense to have a sharp technical rally into the report," rebalancing some of the market's "deeply oversold" nature, US Commodities said.

However, the USDA's grain inventory reports have made a habit of surprising investors of late…

'No sign of significant rain'

Investors were most happy siding with wheat, amid concerns that drought in the US South will continue to slow sowings of hard red winter wheat.

Weather models suggest that "temperatures will run above-normal on the Plains and the Midwest" in the six- to-10 day outlook, weather service WxRisk.com said.

And further ahead, towards mid-October, there is "no sign of any sort of significant rain for any portion of the central lower Plains/hard red winter wheat areas".

Kansas hard red winter wheat closed up 1.2% at $7.53 a bushel for December delivery, if 1% below its day high.

Chicago soft red winter wheat did even better, up 1.5% at $6.58 ¼ a bushel for December, supported by talk of growers being lured to soybeans and corn, (although not gaining enough support to end near the $6.70 a bushel hit earlier).

Price rises

And with dry conditions an issue for wheat Ukraine and parts of the European Union too, European wheat lots fared well too, despite a stronger euro.

Paris wheat for November added 1.2% to E194.50 a tonne, while London's November contract gained 1.3% to £159.00 a tonne.

However, back in Chicago, corn lost most of its early gains to close up 0.7% at $6.52 ¼ a bushel for December delivery (having touched $6.66 ¼ a bushel earlier).

November soybeans ended up 0.2% at $12.63 a bushel (having reached $12.78 ¾ a bushel).

'Strength is suspect'

In New York,

cotton

handed back most of its early gains too, amid continuing fears for demand following heavy cancellations of US export sales orders.

"The lack of volume in cotton would indicate that today's strength is suspect and probably technical in nature," Louisiana-based analyst Mike Stevens said as the December contract approached its day high above 102 cents a pound.

"We may be entering a trading range with fundamental support between 99-95 cents a pound, and technical selling between the 104-108 cents a pound area."

The lot closed up 0.5% at 100.15 cents a pound.

By Agrimoney.com

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