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Evening markets: sugar futures feast on sweeter sentiment

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Friday bought a rising tide which lifted just about all risk-asset boats, although some seemed better than others at catching the waves.

Oil

was one of the top performers as markets reacted positively to Chinese inflation data, and statistics showing US retail sales rising at their fastest pace in seven months.

Brent crude rose 3.2% to to $114 a barrel, making the most of the "risk on" feeling evident in a weaker

dollar

, which fell 0.4% against a basket of currencies, and drop in the

Vix

"gauge of fear" volatility index back below 30.

Sugar

was another to outperform the average 2.0% rise in commodities, as measured by the CRB index.

The sweetener which, with hopes of a return to a massive production surplus trimmed, has made a habit of defying obituaries of its rally, did its best to tear up another soaring 3.8% to 27.93 cents a pound in New York, for March delivery. That took the lot's gains this month to about 10%.

Buyers appear

This time, the buying, which gave sugar its highest finish for a month, was attributed in part to concerns about Brazil's period of soft output spreading into 2012 too.

"The sugarcane crop in Brazil's main Center-South growing region is not set to rise in the coming year," Commerzbank said, noting producer comments.

"Given the high prices, producers did not want to go without harvesting for a year and have therefore not invested in replanting for a long time now."

Also on the supply side, flooding in Thailand, the second-ranked exporter after Brazil, is continuing to raise concerns.

And there is talk of buying too. "It seems there is offtake of physicals in the background justifying the [price] move," Nick Penney at Sucden Financial said, noting reports of Malaysia and Pakistan being in the market.

London white sugar gained as well, up 4.1% at $711.30 a tonne for December delivery.

'Disappointing or not accurate'

But many other farm commodities were less reluctant to move higher, including the big Chicago crops, of which

soybeans

were the most enthusiastic, gaining 1.0% to $12.70 a bushel for November delivery.

Sure, weekly US export sales for the oilseed were "very supportive", Darrel Holaday at Country Futures said. That might have implied a stronger rise.

But the second set of important data due today, US industry crush figures for September, were not.

The trade had expected a 118m-bushel result, in line with the August figure. What they got was 110m bushels.

"The NOPA crush estimate for September was either disappointing or not accurately reported," Benson Quinn Commodities said.

Rival broker US Commodities, terming the crush "slow", said that the figure was "probably due to maintenance," as has effected corn ethanol production.

'Now covered on corn'

Thinking of which,

corn

itself managed a gain of only 0.3% to $6.40 a bushel for December delivery, as the grain's modest reaction on Thursday to confirmation of a 900,000-tonne purchase by China's Sinograin of US corn – America's seventh largest one-day corn sale on record – provoked caution.

Indeed, with the shipment not due until well into 2012, the purchase has raised ideas that China is not that short of corn after all.

"China is now covered on corn needs through mid-May," US Commodities said.

This took the enthusiasm out of weekly US exports sales of 1.26m tonnes, deemed "solid" by US Commodities, and above market expectations.

Furthermore, Informa Economics lowered its estimate for US corn sowings next year by 200,000 acres to 93.1m acres, citing the weaker returns farmers were looking at following last month's drop in prices.

China buying wheat too?

Corn's weak performance cost it some of its new-found premium over

wheat

, despite the latter's weakened fundamentals, with the world looking at more than 200m tonnes of wheat at the end of 2011-12.

The return of dry weather to the southern US Plains helped prices - if not farmers seeking moist seed beds for hard red winter wheat plantings.

Kansas-traded hard red winter wheat was notably strong, up 0.9% at $7.07 ½ a bushel for December.

But there was also a theory of China buying in wheat too.

"Whilst the cereal supply in China looks relatively comfortable for this season, the Sinograin [corn] purchase this week does draw attention to the massive increase in cereal usage expected over the next few years," a report from a major European commodities house said.

"If China has decided that this season of slightly better overall cereal supply worldwide is an opportunity to build greater stocks, then further large imports of maize and even feed wheat are possible."

Chicago wheat closed up 0.8% at $6.22 ¾ a bushel for December.

By Agrimoney.com

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