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Evening markets: strong dollar makes crops toil for gains

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What did the markets love on Valentine's Day?

Safety, for one. Tuesday wasn't a clean sweep for the bears, but investors who plumped for lower risk ended up with the bigger prizes.

Shares

fell, with Wall Street stocks down 0.6% in late deals, while the safe haven of the

dollar

shone, gaining 0.8%. The

Vix

"gauge of fear" had a good day too, adding 8% to return above 20.

Markets didn't just have a rash of European downgrades, by Moody's, to worry about, and a placement on negative outlooks for three countries, Austria, France and the UK, which avoided the drop this time.

The Greek debt saga took on new life when eurozone ministers called off a meeting to discuss Athens' latest plans to impose austerity measures and win a E130bn bailout, amid worries over Greek politicians' appetite for imposing the programme.

And this time the US added to concerns too, ending a spate of upbeat data with disappointing retail sales data for January, showing spending up 0.4% compared with the 0.7% the market had expected.

'Fresh demand from China'

Against that background, agricultural commodities needed some story to emerge smelling of roses.

Soybeans

had a few, as fears grew that, while weather conditions have improved in Argentina, southern Brazil and Paraguay are still dry – factors reflected in Oil World crop revisions.

And, on top, there are ideas of buying by China, surrounding, but not limited to, the country's trade delegation this week to the US, the top soybean exporter – at least, until Brazil completes its overtaking manoeuvre scheduled for this season.

"Fresh demand from China has been supportive as well with trade rumours having China making new purchases of Brazil and US soybeans overnight," Benson Quinn Commodities said.

US Commodities said: "Soybeans are supported by both a drier profile in southern Brazil and renewed soybean buying interest by China."

The US unveiled soybean exports totalling 283,000 tonnes through its daily reporting system, but they were booked to destination unknown.

'A lot of spreading'

Plus, there was some support stemming from US Department of Agriculture forecasts on Monday that US

corn

acres will expand to 94m acres this year – in part at soybeans' expense.

"There has continued to be some momentum tied the baseline acreage data," Darrell Holaday at Country Futures said.

"The ideas of increase acres of corn have supported soybeans as there is a lot of spreading taking place." That is, long soybean short corn bets.

They helped March soybeans end up 0.2% at $12.55 a bushel, compared with a 0.9% dip to $6.33 ½ a bushel in March corn, and despite some disappointing monthly US soybean crush data, at 142m bushels, below estimates of 144m-146m bushels.

While new crop November soybeans followed the prevailing move downward, their decline was limited to 0.1%, to a close of $12.56 ½ a bushel.

New crop December corn dropped 0.5% to $5.64 ½ a bushel.

'Aggressive world exporter'

As for corn itself, Benson Quinn saw it as, soybeans aside, "caught between ample global feed

wheat

supplies and tight US stocks with firm US cash bids due to tight pipelines keeping a floor under the market on any price breaks".

The idea of ample world wheat supplies was only enhanced by an Australian upgrade to its crop to a huge 29.5m tonnes, with exports seen topping 22m tonnes, second only to America's in 2011-12.

Indeed, the data "signal that Australia will be an aggressive world exporter into the end of 2012", US Commodities said.

Which was hardly a positive for prices, which ended down 1.0% at $6.35 a bushel in Chicago for March delivery, and by 1.1% to $6.75 ½ a bushel in Kansas.

European prices did better, supported by the falling euro and sterling, encouraged by Moody's warnings.

Paris wheat for March ended up 1.8% at E211.00 a tonne, while London's May contract finished 0.4% higher at £164.25 a tonne.

Sugar drops

Many soft commodities struggled against the broader market weakness too.

New York raw

sugar

ended down 1.6% at 24.25 cents a pound for March delivery, amid an overhang of bearish sentiment.

"On a flat price basis we expect the markets to retreat slowly back to 24 cents a pound basis March and 23 cents basis May," Nick Penney at Sucden Financial said.

"The only thing that may halt the slide is if the macro picture improves substantially and the dollar weakens further," which was not on the agenda on Tuesday.

'Tight market'

New York arabica

coffee

for March tumbled 3.9% to 206.25 cents a pound, the lowest for a spot contract since December 2010, despite fresh setbacks to output in Colombia, where heavy rains are limited crop prospects.

The decline was attributed to technical weakness and expectations that arabica beans might be about to reverse sharply gains in premium over robusta coffee, as traded in London, prompting rapid unwinding in spread investments.

"Exports from top robusta producer Vietnam are running well behind last year's pace as farmers have waited for higher prices, prompting buyers to draw down stocks in European warehouses," Lynette Tan at Phillip Futures said.

"The market last Thursday moved into backwardation - a structure in which prompt prices are higher than longer-dated contracts, signalling a tight market."

London coffee for March rose 1.7% on Tuesday to extend its premium over the May contract, which gained 0.6%.

By Agrimoney.com

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