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Evening markets: nerves creep in to drag corn, soy off peaks

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Just how high can South America weather concerns drive

corn

and

soybean

prices?

Some doubts crept in in Chicago to drag both crops well below early highs, on what might have been expected to be a red letter day.

Taking weather out of the picture, there was plenty to boost risk assets, which took succour from better-than-expected manufacturing activity data in a range of countries, plus German jobless data showing unemployment data at a 20-year low.

Shares

soared 2.3% in London, and by 1.5% in Frankfurt, while standing 1.8% higher in late deals in New York.

Middle East tensions

In another sign of the risk-on feel, the

dollar

weakened, shedding 0.7% against a basket of currencies.

And the party was not even unseated by fresh

oil

worries, sparked by an Iranian threat to close the Strait of Hormuz, responsible for 15% of global crude exports, which sent Brent crude up more than 4% back above $112 a barrel, to its highest since mid-November.

A risk-on feel, a weak greenback (making dollar-denominated assets more appealing as exports), higher oil prices – it should have been field day for a dollar-denominated risk asset used in making biofuels.

'Our prayers are with you'

And raw

sugar

, a source of bioethanol, certainly seized the opportunity, soaring 5.2% to 24.51 cents a pound in New York, for March delivery, its highest close since mid-November.

The sweetener also got a hand from ideas of buying by commodity index funds who, in an annual January rebalancing process raise positions in 2011's laggards and cut holdings in the best performers to bring weightings back to mandated levels.

In the case of sugar, that should mean buying, given its dismal performance last year, when the sweetener lost 27% in New York.

"The sugar bulls will point out that at the start of the year we typically get the tracker funds allocating resources, and perhaps the index funds may well be getting off the sidelines in the coming weeks," Thomas Kujawa at Sucden Financial said.

He added: "If that's your best excuse to go long sugar then our prayers are with you."

'Yields are being lost daily'

However, corn, another ethanol feedstock, performed nowhere near as well.

And this was with the help of the continued hot and dry weather in southern Brazil and, in particular, Argentina, at a sensitive time for corn and soybean crops.

Over the next week, "central Argentina will see temperatures running anywhere from 2 to as much as 6 degrees Celsius above normal", WxRisk.com said.

"Rainfall amounts will continue to run much below normal - only 25% of normal or less over all of south west and south east Brazil, as well as Paraguay and all of central, eastern and northern Argentina."

Broker US Commodities said: "The dominant driving force on the grains remains the weather in South America.

"The trade is fearful that corn yields are being lost daily and soybeans will soon join."

Benson Quinn Commodities added: "The next real opportunity for moisture in the drier regions is offered for mid next week. But extended forecasts have offered potential rain events, while little moisture seems to materialise."

'Data not supportive'

However, while Chicago corn for March rose nearly 3% to $6.64 ½ a bushel recovering its 100-day moving average, it could not stay there, and fell back to close at $6.58 ½ a bushel, up 1.9% on the day.

"Export inspections released after the opening were not supportive," Darrell Holaday at Country Futures said, after the US Department of Agriculture revealed that US crop shipments, as measured by cargo inspections, fell steeply in the week to December 29.

That said, it was a holiday period, and the figures for corn, soybeans and

wheat

were above those a year before.

'As good as the next forecast'

Still, technically "stochastic levels indicate corn and soybeans are overbought and due for a correction", Mr Holaday added.

And US Commodities reminded that "the market is as good as the next forecast".

Soybeans too, dropped back from intraday highs, if closing up 1.7% at $12.18 ¼ a bushel for January delivery, and by 1.6% to $12.27 ½ a bushel for the better-traded March lot.

And with corn past its best wheat, which has far looser fundamentals, had no chance, closing up a modest 0.7% at $6.57 a bushel for March – reverting to a discount against corn.

Cotton soars

Cotton

did altogether better, closing up the exchange limit of 4.0 cents in New York, at 95.80 cents a pound, for the March contract.

The rally was boosted by a round of short-covering helped by ideas that high prices were needed to secure US sowings against corn and soybeans, whose prices have been so buoyant.

And even

cocoa

managed to turn over a new leaf after itself suffering a weak finish to 2011, depressed by thoughts of strong West African production.

New York cocoa for March closed up 0.3% at $2,115 a tonne, if only on ideas of purchases during the index fund reweighting.

By Agrimoney.com

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