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Evening markets: soybeans, sugar lead crops, as oil declines

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Soybeans

and

sugar

, which regulatory data revealed have become favourites among speculators, remained in investors' good books, closing at multi-month highs.

But this time they were joined by a range of other agricultural commodities too, with even

coffee

,

cotton

and

wheat

, firmly out of favour with fast money, showing life.

The boost was fuelled by strong US housing data. An index of pending home sales compiled by the National Association of Realtors rose 2% last month, rebounding faster than economists had expected from a 3.5% drop in December.

But a fall back in oil was seen as a positive too.

Crude factor

Crude and crops have a complex relationship, with farm commodities more closely tied to energy markets now many of them, such as

corn

, sugar and wheat, are used in making biofuels.

Higher crude prices boost the attractions of these fuels, but also threaten world economic growth, and demand for crops from other sources.

Whatever, much of a recovery in grains from early losses "was tied to substantial recovery in the outside markets as oil moved lower", Darrell Holaday at Country Futures said.

Indeed, from a technical perspective, Brent crude posted a negative, approaching Friday's nine-month high only to shy away, and stand more than 1.0% lower in late deals.

'Dismal growing season'

Soybeans had an extra boost from the latest round of downgrades to Brazil's harvest prospects, with AgRural cutting its estimate to 68m tonnes from 70.2m tonnes.

Agroconsult reduced its soy forecast to 69.9m tonnes from the 71m-tonnes figure unveiled earlier this month.

"That has been supportive," Mr Holaday said.

Michael Cordonnier at Soybean and Corn Advisor said: "Farmers in southern Brazil continue to suffer through a dismal summer growing season.

"Hot and dry weather since November has resulted in severe reductions in corn and soybean yields in southern Brazil."

'Global demand'

Furthermore, weekly data on US exports were for soybeans at least not as disappointing as for corn and wheat, coming in at 37.0m bushels, down nearly 1.5m bushels from last time.

Still, they were enough to keep alive the idea that South America's woes will, from an exports point of view, be America's gain.

"It seems there is global demand for corn and, more importantly, soybeans near these levels as China looks to shift additional soybean purchases to the US," Benson Quinn Commodities said.

"It is the lower South America crop along with Chinese buying that is supporting the market," rival broker US Commodities said.

Soybeans for March closed up 1.2% at $12.93 ¾ a bushel, a five-month high for a spot contract, with the better-traded May lot adding the same to $13.02 ½ a bushel.

'Choice is harder by the day'

Meanwhile, the new crop November lot closed up 0.8% at $12.81 ¼ a bushel, continuing to make itself more attractive in the battle, against new crop December corn, to win area in US sowing plans.

Indeed, the soybean: corn ratio ended at 2.30, up from 2.11 since the start of the month – ie moving in the oilseed's favour.

"Remember that the decision line for producers is normally 2.25 so the choice is harder by the day as seed orders are place," Matthew Pierce, trader at GrainAnalyst.com, said.

'Bid under the markets'

Still, not all corn contracts fell. Old crop corn gained support from ideas of Chinese buying of the grain.

"Expect to see China continue to make weekly purchases of US corn," if not "in an attention grabbing fashion unless the corn market breaks sharply", Benson Quinn said.

US Commodities said: "China's corn values remain strong, near record highs, and have put a bid under the world and US markets."

While the December lot closed down 0.2% at $5.57 a bushel, the March lot added 0.6% to $6.44 ½ a bushel, and the May contract 0.7% to $6.48 ½ a bushel.

Corn vs wheat

One factor pressing the December lot was, whatever its attractiveness against soybeans, its attractions in the less-watched sowings battle against spring wheat in the northern US.

A straw poll of growers in North Dakota by Allendale revealed that farmers "plan on switching approximately one-third of the spring wheat acres to corn in 2012", Paul Georgy, at the broker, said.

"The bottom line is 100-bushel-per-acre corn will return more than an average to good crop of wheat."

And sowing conditions look like being good, with" very little snow cover in North Dakota which should limit any spring flooding".

Short covering

So even Minneapolis spring wheat, which was sunk last week by forecasts for strong US sowings, managed gains, adding 0.5% to $7.90 ¾ a bushel for March delivery.

Kansas wheat for March did better, up 0.6% at $6.85 a bushel, with the May contract gaining 0.8% to $6.93 ½ a bushel.

But it was Chicago which did best, up 0.7% at $6.45 ¾ a bushel for March and 1.8% to $6.52 ¾ a bushel, helped by short-covering by speculators, whose record net short in the contract has left prices liable to a spike, given that it represents, in essence, unfulfilled buying, which must be undertaken to close the position.

European contracts were mixed. Paris wheat for May gained 0.3% to E202.00 a tonne, while London's May lot eased 0.2% to £165.25 a tonne.

'Much-touted surplus'

Historically-strong levels of short positions helped some soft commodities too, notable cotton and coffee, with speculators reluctant to load on more short holdings.

New York cotton for March closed up 0.6% at 90.40 cents a pound, and the May contract by the same at 90.67 cents a pound.

And March coffee ended up 0.5% at 204.60 cents a pound, distancing itself from a 16-month low, for a nearest-but-one contract, last week, at 197.80 cents a pound.

But raw sugar did better, adding 1.3% to 25.55 cents a pound for May delivery, helped by talk that a trading house is preparing for a large delivery against the close-to-expiring March contract, and that short-term supplies may not be as ample as has been expected.

Nick Penney at Sucden Financial noted talk of "the much-touted surplus moving forward to the second half of the year and, therefore bringing in further speculative buying near term".

By Agrimoney.com

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