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Evening markets: softs and soybeans snatch focus from wheat

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US jobs data instilled a risk-on attitude into financial markets.

And this time, in the ags space, soft commodities managed to jostle themselves to the forefront.

The announcement that the world's biggest economy created 243,000 jobs last month, well ahead of economists' expectations of 140,000, and that the unemployment rate fell to 8.3%, its lowest in nearly three years, sent investors scurrying into the likes of shares and many commodities too.

The CRB commodities index added 1.1%.

Shorts covered

Soft commodities were lifted by the tide, particularly

cocoa

, which enjoyed the latest of a series of occasional price jumps as funds scrambled to close short positions.

March cocoa ended up 3.5% at £1,502 a tonne in London, and 3.4% at $2,300 a tonne in New York.

But

cotton

and

sugar

rose too, given an extra boost by floods in eastern Australian, a major production region for both crops.

Sugar, of which Australia is the third-ranked exporter, closed up 2.0% at 23.94 cents a pound in New York for March delivery.

'Speculators are bullish'

Mike Stevens, the veteran Louisiana-based cotton analyst, flagged "nervousness over weather in Australia" and a "lot of talk about flooding in Australia's cotton areas".

The fibre gained support too from further talk of fund buying.

"I heard more than one commercial say 'to sell March at 93 cents a pound or below you better be bearish'," Mr Stevens said.

"Speculators are bullish so traders watched for bottoming action."

In fact, New York's March cotton contract closed up 2.3% at 96.34 cents a pound.

'The surprise market'

Grain markets were not so comfortable to go with the tide – as indeed they have not been for a while, captivated by South American dryness concerns and, more lately, the potential for Russian export curbs and potential crop losses in the former Soviet Union and Europe to freezing temperatures.

Soybeans

performed the best of Chicago's big three, closing up 12.3% at $12.32 ½ a bushel for March, and proving, as Darrell Holaday at Country Futures said, "the surprise market in the grains today".

The rise was attributed to the latest downgrades to the Argentine crop – of a sizeable 4.5m tonnes to 46.5m tonnes by Informa Economics.

Not only was this comfortably below the latest US Department of Agriculture figure of 50.5m tonnes (USDA data are generally taken as market benchmarks) but came from an organisation, in Informa, generally seen as conservative.

Furthermore, it raised some questions over ideas that the better rainfall Argentina is now getting can revive the crop much.

'Margins are not good'

Lower estimates came in for Argentine

corn

too, compared with the USDA's last guess of 26.0m tonnes, which will be updated in a fresh Wasde crop supply and demand report next week.

Informa pegged the harvest at 22.5m tonnes, broker Allendale at 23m tonnes, and the USDA's Buenos Aires bureau at 21.8m tonnes.

However, the impact was blunted by concerns for corn ethanol demand, following the ending in December of some industry tax perks and ideas of a return of Brazilian cane ethanol production to growth, after two years when mills have favoured high-priced sugar instead.

"Ethanol is dominating the discussion today as the industry is full of ethanol and margins are not good," Mr Holaday said. (They may have been improved by a 2.2% rise in Brent

crude

back above $114 a barrel.)

Indeed, data earlier in the week showed US inventories at a record high.

Corn for March ended 0.2% higher at $6.44 ½ a bushel.

'Rallied hard'

And this in turn was better than

wheat

could manage, in Chicago at least, where the March contract fell 0.3% to $6.60 ¾ a bushel.

One factor which looked against prices was the resolution by Russia, eventually, to allow grain exports of 27m tonnes in 2011-12, above the 23m-25m-tonne level where it previously indicated it would impose curbs, but which merchants shipments looked set to test potentially next month.

Still, with Russian wheat having already lost its lead in pricing, and low freight rates (the Baltic Exchange Dry index fell to a fresh 25-year low of 647) increasing buyers' geographic purchasing range, this was not such a huge issue, some traders said.

"The market certainly took it bearishly on the open but rallied hard and but for a bit of late-day positioning would have finished close to flat," Scott Briggs at Australia & New Zealand Bank said.

'Winterkill territory'

Indeed, there is "more and more focus on the cold in Europe, especially France and Germany", Mr Briggs said, with forecasts showing temperatures in key growing regions falling to minus 10-15 degrees Celsius next week "definitely moving into winterkill territory".

According to weather service WxRisk.com, "temperatures over the next seven days will be extremely cold.

"From the Pyrenees to north west Russia, temperatures will average 10 degrees Celsius or more below normal.

"Over the Balkans and southern Ukraine temperatures will average 6 degrees Celsius or more below normal."

Chance for glory

Getting accurate estimates on what this means in terms of lost crops is not so easy.

Indeed, traders at one UK grain merchant mused that "it's one of those subjects on which any meteorologist wanting to make a name for himself has to have an opinion.

"The result is a stream of reports claiming anything from no damage at all to over half the crop lost."

Still, there was enough concern to see European wheat contracts close higher, with Paris wheat for March ending up 0.7% at E217.25 a tonne, and London wheat for May adding 0.3% to £167.45 a tonne.

'Good rain and snow'

US contracts faced the added hurdle of precipitation forecast for dry areas of the Plains, boosting prospects for winter seedlings.

"There has been good rain and snow in the Plains, and more on the way. This has been very beneficial for the wheat," Mr Holaday said.

Indeed, Kansas hard red winter wheat, particularly affected by dryness, closed down 0.7% at $7.12 ¾ a bushel.

By Agrimoney.com

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