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Evening markets: sugar leads crop futures on late side

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Weak closes are becoming somewhat fashionable in farm commodity markets.

The main Chicago grains once again suffered a late sell-off, to leave them closing pretty much at their day low.

Even so, they did better than

sugar

, which closed down 2.8% at 26.83 cents a pound for October delivery, a three month low for a spot lot, and down 3.3% at 25.91 cents a pound for March, amid some thoughts that that long-awaited easing in supplies may actually be happening.

Talk of European Union and Russian beet corps continues to be positive, actually a weight particularly for London white sugar, which ended down 2.4% at $662.30 a tonne, the lowest finish for a spot contract since May.

'Good crush activity'

But talk of pre-Unica leaks did its bit too – meaning that the market was, once again, alive with rumours ahead of an announcement (expected on Thursday) from the Brazilian cane industry association. Such speculation has previously proved near-enough accurate.

And this time it spoke of an improved Brazilian performance.

"Talk is that the report will show good crush activity with increasing [sucrose levels in cane] coming towards the end of the crushing season," Nick Penney at Sucden Financial said.

Following on from a, rare, upgrade on Friday by consultancy Canaplan to its forecast for Brazilian output, bears have something of a theme to latch on to.

Mr Penney also noted the broader and worsened macroeconomic picture too, which "is not helping commodities", adding that "this time, the sugar bull story seems to be on the wane at the same time".

Operation Twist

Indeed, broader markets were cautious, in part ahead of a statement from the Federal Reserve and whether this would reveal "Operation Twist" – a rejig of the US central bank's bond holdings aimed at depressing borrowing rates.

But sentiment was little helped by a yet another downgrade by a credit ratings agency, after Standard &Poor's hit on Italy earlier in the week.

This time the agency was Moody's which, late in the trading day, dropped its rating on Bank of America, which it said looked less likely to receive government support in the case of failure.

And that played a big part in the late sales which left Chicago

corn

for December down 0.7% at $6.85 ¾ a bushel by the close, with December

wheat

shedding 1.2% to a one month closing low of $6.66 ¾ a bushel.

November

soybeans

shed 1.3% to $13.20 ½ a bushel.

'Weather issue exists in Argentina'

Opening live deals had been more upbeat.

"There was some early strength as the Energy Information Administration (EIA) released their energy inventory data and it indicated a 7.3m-barrel decrease in oil inventories," Darrell Holaday at Country Futures noted.

"This pushed oil $1.50-a-barrel higher and the grain markets responded initially," linked to crude by their role in making biofuels.

Dry conditions in South America are gaining increasing attention too.

GrainAnalyst.com trader Matthew Pierce noted that a "weather issue exists in Argentina, with no rain forecasted for Cordoba with their wheat under early stress". It is a negative for corn sowings too.

Winners either way

And this on top of dry weather in the US and Ukraine.

"There is now no sign of rain in the next two weeks, after a little rain in Oklahoma and west Texas tomorrow," Mr Holaday said.

"That factor along with a persistent drought that has developed in the Ukraine over the last month, threatening their wheat planting, has resulted is some buying developing in the wheat market."

Not that the US drought should necessarily be viewed as so much of a deterrent to sowings, given the support to farmers from insurance, giving them a heads-I-win, tails-the-government-pays scenario.

US Commodities said: "Hard red winter wheat for 2012 will probably be planted for insurance.

"Wheat producers can take out 85% insurance and if no rain develops a failed crop will develop and they can collect insurance and plant another crop in the spring."

'The $7.00 strike'

Also on the positive side of the ledger is the influence from soon-to-expire options.

"Trade is looking for market to target the $7.00-a-bushel strike in the corn and the $13.50 strike in beans," Benson Quinn Commodities said.

However, on the negative side, the EIA data also showed weak ethanol output, which averaged 871,000 barrels a day in the week to September 16, down 8,000 barrels a day on the previous week's number.

Furthermore, while there was still talk around of Chinese purchases of Argentine and/or US corn, the US Department of Agriculture made no announcement of an export order through its daily reporting system.

Fibre falls

European wheat futures managed to close before the late slide in Chicago, enabling the November wheat contract to finish up 0.4% at E196.75 a tonne in Paris.

London's November lot added 0.8% to £160.75 a tonne.

However, in New York,

cotton

futures settled in for a negative close, harmed by its status as a non-food farm commodity whose fortunes are more linked to macroeconomic welfare.

The December lot ended down 2.5% at 102.83 cents a pound.

Looking ahead

As for the next session, this may depend largely on the reaction to Operation Twist, which the Fed indeed unveiled later on Wednesday.

(The unitial response was hardly overwhelmingly positive, with the Dow Jones Industrial Average share index looking set in late deals for a close down more than 1%, and the

dollar

up 0.8%.)

Wheat markets face the next tender from Egypt, the top importer of the grain, which was unveiled after the close of play.

By Agrimoney.com

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