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Evening markets: risk-on mood boosts buying in crop futures

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Risk on.

The Chinese slowdown in economic growth slowing to 8.9% in the fourth quarter of 2011, so boosting ideas that Beijing will reverse tightened monetary, provided a prop for the range of risk assets on Tuesday.

Stocks

rose, if not in Europe and the US matching the 4% surge in Shanghai (which got extra support from reports that China is to introduce measures to support prices, such as speeding approval for foreign investors).

The

dollar

fell too, by 0.5% against a basket of currencies, so boosting the competitiveness of dollar-denominated exports such as many agricultural commodities.

"The outside [markets] have been very helpful to the grains as the US dollar has been weaker through the entire session," Darrell Holaday at ags broker Country Futures said.

'Limited opportunity for moisture'

The CRB commodities index rose 1.0%, and many crops managed to outperform that, such as corn and in particular, which gained support from ideas of further dry weather in Argentina.

"The two-week forecast offers limited opportunity for moisture with the best chances occurring late this week and into early next week," Benson Quinn Commodities said.

Analysts at Oil World, cutting forecasts for Argentine and Brazilian soybean crops - and questioning the US upgrade last week to its forecast for domestic soybean stocks at the close of 2011-12 – warned that further downgrades could be on the cards.

"In Argentina there is now an increasing risk of additional irreversible crop damage in the second half of January."

Consumption uptick

Furthermore, soybeans, for once, strong data on consumption too, with the industry estimate for the US crush coming in at 145.2m bushels, some 4m bushels above expectations.

And US exports, as measured by cargo inspections, jumped by more than 8m bushels week on week to 40.9m bushels, albeit still eclipsed by those of a year before.

Chicago

soybeans

for March stood 2.1% higher at $11.82 ¾ a bushel in closing deals, recovering more than half the ground lost at the low point on Thursday, when the relatively strong US Department of Agriculture estimates for domestic crop inventories sent prices plunging.

Corn

for March added 1.1% to $6.06 a bushel, looking set to regain the $6-a-bushel mark, but still well below levels before the post-USDA-report massacre.

Will China buy corn?

Indeed, this may leave the grain prone to further purchases by China, whose purchases of the grain are considered of huge importance in Chicago, given the country's import potential/

"US corn values are now $2.20 a bushel under Chinese values," excluding VAT, US Commodities said.

"This brings into question if China will buy corn."

'Large portion to be abandoned'

But there was not such support for

wheat

, which added a more modest 0.5% to $6.04 ¾ a bushel in Chicago, falling back into a discount against corn.

News from Ukraine was mixed, with snows seen insulating the crop against frost, but not viewed as that much of a lifesaver in moisture terms for crops which suffered from a desperately dry autumn.

"Low plant populations and stunted development keeps a lid on wheat potential," Gail Martell at Martell Crop Projections said, adding that "the ability of wheat to recover is constrained by the very poor fall growing conditions".

She added that "similar fall drought, poor germination and stunted growth is hampering the Texas wheat crop in the US", where despite increased rainfall in November-December, "wheat has failed to improve".

"A large portion of wheat is expected to be abandoned," potentially being allowed to be grazed out by beef cattle and planted with another crop come spring.

Export boost

Still, hard red winter wheat, the type grown in Texas, managed only a 0.25-cent gain in Kansas, where it is traded, to $6.70 ¼ a bushel for March delivery.

European wheat contracts did better, including in London, after the UK unveiled stronger wheat exports in November than the market had expected, boosted by shipments to Algeria, the US and, within Europe, the Netherlands.

Dutch mills were forced to turn to alternative grain sources after low Danube and Rhine water levels denied them access to their usual supplies.

London wheat for May, the best-traded lot, added 1.1% to £157.26 a tonne, while Paris wheat for March closed up 0.9% at E200.00 a tonne.

'Definitely risk on'

Back to the US, and New York

cotton

stormed 2.9% ahead to 98.20 cents a pound, for March delivery, in late deals.

The fibre, as linked to the non-food, discretionary purchase of clothing, is seen as more sensitive to broader economic news anyway, but particularly that from China, the top cotton importer, grower and consumer.

"The better-than-expected economic information coming out of China over the weekend, and thoughts that any additional China easing of credit with the better economic data, will put them in a better position to buy cotton, soybeans, copper, crude, etc for their stockpile," veteran cotton analyst Mike Stevens said.

"It is definitely a 'risk on' trading day for the speculators."

An estimate by the China Cotton Association of a 10.5% drop in China's cotton sowings this year, more than some other estimates, did little to dampen buying.

Harmattan damage

Meanwhile, talk by chocolate giant Barry Callebaut of an improvement in European demand, after late-2011 weakness, helped

cocoa

rebound 1.6% in London to end at £1,504 a tonne for March delivery.

Furthermore, as Lynette Tan at Phillip Futures noted, cocoa prices are being somewhat underpinned, "by a recent sharp slowdown in top grower Ivory Coast port arrivals", where farmers have delivered 763,000 tonnes of the bean so far in 2011-12, down nearly 4% year on year, as the "dry Harmattan [wind] hits farm output".

By Agrimoney.com

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