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Evening markets: spring wheat leads rebound in crop futures

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Would the real agricultural commodities complex please stand up.

The improvement in sentiment in external markets - fostered by hopes of a (real) end to the eurozone debt crisis, with a better-than-expected reading from Germany's Ifo business sentiment survey helping too – lowered the liquidation pressure, allowed crop markets to show what they were really made of.

Were last week's tumbles in prices justified by fundamentals?

With the


helping too by falling 0.3%, a sign of a more "risk-on" sentiment, and making dollar denominated assets such as many farm commodities more appealing as exports, the default move was up.

And most farm commodities took that route, outperforming even the 0.4% rise in the average raw material, according to the CRB index.

Dry conditions…

If there was a surprise, it was that the grain markets danced somewhat to wheat's tune rather than that of corn which, being in far shorter supply, was seen as likely to prove the key agent of any rebound.

"The dry conditions in the US, Ukraine and now Australia have prompted some broad-based buying in wheat," Darrell Holaday at Country Futures said.

"Wheat was in position to rally last week, but the outside markets along with the weakness in corn and soybeans held off a lot of buying."

But there was more to it than that, with hard wheats, and especially Minneapolis hard red spring wheat, doing especially well.

And this when sentiment towards the protein premium had been poor, amid a better-than-expected Canadian spring wheat harvest.

Spring wheat squeeze

But farmers' reluctance to sell especially spring wheat at prices which, last week, touched $3 a bushel below their June high has been putting a physical squeeze on supplies.

"While demand for spring wheat is not very robust, the commercial is having a difficult time buying spring wheat," Brian Henry at Benson Quinn Commodities said.

"Given the recent break in prices, the lack of supply and the state of the current farm economy, there is a strong possibility that the last large tranche of spring wheat to move before the first of the year will be the hedge-to-arrive contracts that have been priced off the Decemeber [contract].

"Unless the global economy goes into a full nose dive between now and the first of the year, expect producers to look for [price] appreciation prior to opening bin doors."

And this when hard red winter wheat farmers are dealing with unfortunately dry conditions too.

'Starting to show teeth'

So it was Minneapolis wheat which did especially well, adding 2.2% to $8.70 a bushel for December, outperforming the March contract, which added 1.9% to $8.50 ½ a bushel, besides other grains.

The so-called "bull spread"– the, atypical, premium of the near-term lot - is in Minneapolis "starting to show teeth", GrainAnalyst trader Matthew Pierce said.

Kansas wheat added 1.7% to $7.44 a bushel for December, with its Chicago soft red winter wheat equivalent up 1.2% at $6.48 ¼ a bushel.

And all that helped Chicago corn recover too, up 1.5% at $6.48 a bushel – not quite enough to regain its premium over Chicago wheat.

Strong shipments

Not that corn didn't have its own brickbats.

Sure, the talk of Chinese purchases of US corn still rampant, although Benson Quinn questioned speculators' enthusiasm for playing on this trade, given the macroeconomic picture.

But a series of banks, including Credit Suisse, Morgan Stanley and Rabobank, pointed out, in essence, that tight corn inventories were hardly likely to get any easier at cut prices.

Indeed, weekly US export inspections for corn were, at 34.3m bushels, up nearly 10m bushels week on week and better than the trade had expected, a sign of brisk demand.

'Gut of harvest'


, however, could not hold on to positive territory, if closing well above 2011 lows hit earlier.

Chicago's November lot closed down 0.2% at $12.59 ¾ a bushel.

"It is difficult to rally right in the gut of harvest," Darrell Holaday noted.

"The harvest conditions west of the Mississippi River has been wide open for two weeks and this will continue through the week and into next week."

This is the case in soybeans in particular because early harvest reported are "a little stronger than expected".

"This is certainly pushing thoughts that the USDA number of 41.8 bushels an acre, and possibly more, is within reach."

'An avoidable market'

Among soft commodities,


dropped too, falling 1.6% to 99.64 cents a pound in New York for December delivery, finding that a drop below 100 cents a pound encouraged further selling.

"Cotton is a potential put [option] buy but overall this is still an avoidable market," James Mound at MoundReport said.

However, most other softs found the going easier, with raw


adding 1.0% to 25.09 cents a pound in New York for October delivery, and 0.6% to 24.28 cents a pound for March.

The rising costs of sugar output in Brazil, the top producer and exporter, highlighted by Czarnikow this month, and potentially seen at 22 cents a pound, meant that "24 cents a pound may well not be a sell opportunity", Thomas Kujawa at Sucden Financial said.

The market was in a "buy-on-a-dip" mood.

Coffee perks up

Furthermore, the Brazilian real showed some strength against the dollar.

The weakness is the currency of Brazil, a major exporter of crops such as sugar and


, has been seen as a major depressant to dollar-denominated prices, besides demand concerns provoked by world economic fears.

Coffee added 1.9% to 239.95 cents a pound in New York for December delivery.


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