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Evening markets: soybean prices revive on Brazil downgrade

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Soybeans

notched up a 10th successive trading day of gains after Informa Economics extended the round of downgrades to Brazil's harvest of the oilseed with an unexpectedly lowball estimate.

The analysis group cut its estimate for the soybean crop in the world's second-ranked producing country by 2m tonnes to 68m tonnes.

While investors had been braced for a cut to its last forecast, given continuing drought in southern Brazil, the extent of the downgrade surprised many investors.

The estimate put Informa, which is known as being among the more conservative forecasters, as more pessimistic on prospects for the crop than Brazilian crop bureau Conab, in-country analysts such as AgRural and Agroconsult, and other US commentators such as Allendale and Archer Daniels Midland.

The spate of estimates comes in the run up to the US Department of Agriculture's latest monthly Wasde report, due next Friday, whose data set world market benchmarks.

'Carried the complex'

"Informa put their Brazilian soybean number down at 68m tonnes and that is on low end of the range of thought in the industry," Darrell Holaday at broker Market 1 said.

"That number rallied soybeans and that has carried the entire complex."

Informa also cut its estimate for Paraguay's crop by 2.4m tonnes to 4m tonnes.

While it raised its forecast for the Argentine crop by 1m tonnes to 47.5m tonnes, this remains below the USDA's figure of 48m tonnes.

'Increased demand'

Further impetus to the oilseed was provided by the USDA's announcement through its daily reporting system of the sale of 285,000 tonnes of US soybeans to "unknown destination".

Broker US Commodities said: "It was probably China," the top soybean importer, whose demand for US supplies is being whetted by a return by its crushers to positive processing margins at a time when drought has diminished hopes of supplies from South America, the only realistic alternative source of the oilseed.

"Recent increased demand has narrowed the gap between current marketing year [soybean export] sales pace and last year's sales pace," Kim Rugel at Benson Quinn Commodities said.

"Private analysts now expect sales to reach the USDA projection of 1.275bn bushels due to smaller Brazil and Argentine crops."

'Weather pattern continues to improve'

Soybeans for March closed up 0.9% at $13.28 ¼ a bushel, with the better-traded May contract adding 0.8% to $13.33 a bushel.

The performances gave the lots, which had opened weak, their 10th successive day of gains.

And their recovery boosted other Chicago crops too, despite better hopes for soil moisture in Canada and the US, where a dearth of rain or snow has dogged many winter grain crops and prompted jitters over spring sowings too.

"The US weather pattern continues to improve," US Commodities said, noting forecasts for up to 2 inches of rain in eastern Kansas, Oklahoma and Texas.

Gail Martell and Martell Crop Projections said: "Rainfall is anticipated in strong thunderstorms in southern Illinois, Indiana and Ohio and the Gulf states.

"Precipitation has increased in the western Canadian prairies as well, but not across the board.

While Alberta has received "good snowfall" recently in the north, and Saskatchewan "turned wet along the US border and the central provincial region", Manitoba "has remained very dry".

Dollar headwind

An extra setback was a strong

dollar

, which soared 0.8% against a basket of currencies after Spanish defiance of setting a European Union-agreed budget deficit of 4.4% of GDP, targeting a 5.8% figure instead.

A strong greenback at any times hurts the case for dollar-denominated commodities, making them more expensive as exports.

And it is especially sensitive now given that "funds have been increasing their positions in commodities due to inflationary concerns and the falling dollar", Paul Georgy at Allandale said.

"If the dollar continues its path higher, we may start to see money come off the table and funds reduce positions."

Grains gain

In fact, wheat recovered from losses of more than 1% to finish 1.7% higher at $6.74 ½ a bushel in Chicago for May delivery, and up 1.7% at $6.70 ¾ a bushel for March.

But corn, the butt of "buy soybeans or wheat, sell corn" spreads, struggled to post such significant gains.

While the March contract ended 0.8% higher at $6.59 a bushel, the May lot added a modest 0.2% t0 $6.55 a bushel.

By Agrimoney.com

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