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Evening markets: revived euro-woes cause deep crop losses

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So much for the calm. The tranquil early conditions turned out to have something of the eye of a hurricane about them.

The worries about the eurozone debt crisis revived as Friday's accord between European Union nations (bar the UK) showed signs of splintering, with five (non-eurozone) countries - the Czech Republic, Denmark, Hungary, Poland and Sweden – having second thoughts about the programme.

Italy faced protests from Northern League politicians to its E30bn austerity spending plan, and was forced at a bond auction to pay nearly 6.5% on E3bn of five year bonds.

Furthermore, Credit Agricole, the French bank, revealed a swathe of job losses and a writedown of E2.5bn, amid a retreat that, rumours had it, involved liquidating a stack of commodity positions in a drive to preserve capital.

The

euro

fell below $1.30 for the first time since January, while

shares

fell, by 2.3% in London and 3.3% in Paris.

The

dollar

kicked 0.7% higher to its highest against a basket of currencies since January, presenting an extra headwind to dollar-denominated trading assets such as commodities, making them less affordable to foreign buyers.

'Rough day'

Indeed, the average commodity dropped more than 3%, as measured by the CRB index, with Brent

crude

amongst the worst hit, falling more than 4% in late deals back below $105 a barrel.

"This has been a rough day in the commodity sector," Darrell Holaday at agricultural futures broker Country Futures said.

"All commodities were under a lot of pressure early with extreme pressure in the metals and energy."

Even

gold

had a shocker, falling below its 200-day moving average for the first time in nearly three years.

'Off the radar'

The agricultural space achieved a long list of bearish landmarks too at their intraday lows.

Chicago

wheat

for March dropped 3.6% to $5.79 a bushel, the lowest for a nearest-but-one contract since July last year, with

corn

for March falling to within 0.25 cents of a one-year bottom.

January

soybeans

dropped to $10.94 ¼ a bushel, the worst for a spot contract in 14 months, while in New York

coffee

for March tumbled to a one-year low of 213.50 cents a pound, and March raw

sugar

hit a six-month low of 22.68 cents a pound.

Cotton fell 3% to a 16-month low of 84.35 cents a pound at one stage despite, or because of, being ignored by fast money.

"Open interest levels in cotton futures and options is running about half of what it was last year at this time," softs trader Jurgens Bauer said.

"Speculators seem to have taken the cotton market off their radar."

Sugar buyers

At least farm commodities (bar wheat) managed to stage a late revival to beat the CRB index, as investors who had already run down long positions in farm commodities, and had a stack of short positions in many, took profits.

There was some fundamental reason to tread warily to the downside.

In sugar, Nick Penney at Sucden noted that end users were "waiting patiently to absorb any sharp sell-offs", having shown a reluctance to buy at higher levels.

Furthermore, sugar prices at this level are not far off the point where Brazil's mills – the few left open - would switch to ethanol, an indicator of the depth the market has sunk too.

Raw sugar for March closed down 2.7% at 22.82 cents a pound.

'Continued dryness'

For corn and soybeans, South America weather problems continued to grab investors' attention.

Paul Georgy at Allendale noted "the forecast for no rain in Brazil and Argentina until next week", adding that "there have been a few Brazilian firms reducing the bean crop size already because of dry conditions".

Benson Quinn Commodities highlighted "continuing concerns about dry conditions in South America" which were set "to continue as temperatures remain warm, recent rains have disappointed and forecasts continue to hint at a dry weather pattern".

Mr Holaday said: "Models continue to point to continued dryness in South America," if adding that "there really is just not a lot of interest in buying".

Crush crushed

Still, such fears were enough to take the worst off the selling, with soybeans facing another negative from weak US crush data too.

The National Oilseed Processors Association pegged use at 141.3m bushels – 1.1m bushels below market hopes.

This was a reflection of slowing use by biodiesel plants "as credits are running out at the end of the month", Matthew Pierce at GrainAnalyst.com said.

"There will be a new deal cut next year but not in the first couple months so look for crush rates to fall."

January soybeans closed down 1.7% at $11 a bushel on the nose.

'Ethanol margins trimmed'

For corn, biofuels were a factor too, with weekly US data on ethanol proving not altogether positive.

Sure, stocks fell, by 800,000 barrels, a positive sign for prices.

But production fell 16,000 barrels a day last week from the previous week's record to 938,000 barrels a day.

"Ethanol margins have been trimmed because the quotes for ethanol after the first of the year [2012] are down sharply and ethanol for January, February, March is trading $0.50 a gallon below wholesale unleaded gas," Mr Holaday said.

"This reflects the loss of the $0.45-a-gallon [blenders'] tax credit that will occur at the end of the year."

Corn for March dropped 2.4% to $5.80 a bushel, the lowest finish for a year.

'Warmth and wetness'

Still, even that was enough to close the discount to March wheat to just $0.75 a bushel, after a fall in the bread-making grain of 3.3%.

Wheat faced extra pressure from rain in areas of the US southern Plains where autumn seedlings have been crying out for moisture.

"Warmth and wetness in the US bread-basket is giving wheat a chance to grow and develop. Conditions are improving," Gail Martell, at Martell Crop Projections, said.

"Hard red winter wheat has received 2.8 inches of rainfall the past four weeks and nearly 50% above normal following a severe drought August through October."

Furthermore, conditions look set to stay mild next week "allowing wheat development to progress".

Still, Kansas hard red winter wheat for March lost 2.5% to $6.35 ½ a bushel, performing better than its Chicago soft red winter peer, gaining some support from the tighter world supplies of higher-protein grain.

By Agrimoney.com

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