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Evening markets: sugar steals limelight as grains falter

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In the end, grains once again proved themselves vulnerable, leaving

sugar

to steal the show in agricultural commodities markets by soaring 4.5% in New York.

It wasn't a difficult day for commodity futures to rise, with financial markets' "risk-on" guise, on the idea that France and Germany would sort out the eurozone debt mess, getting stronger as the day went through.

Frankfurt

shares

closed up 3.0%, London stocks up 1.8%, and New York's Dow Jones Industrial Average was 2.5% higher in late deals.

The

dollar

slumped 1.5%, making dollar-denominated assets such as many raw materials more competitive for buyers in other currencies.

And, indeed, the average commodity took heart, adding 1.7% according to the CRB index.

'Jawboning is not uncommon'

Oil

beat the average, adding 2.9% to nearly $109 a barrel for Brent crude, and improving the scope for crops such as sugar which have alternative uses in biofuels.

That said, raw sugar's rise was also put down largely to supply factors, with flooding appearing increasingly likely to threaten output in Thailand, the second-ranked exporter, besides lingering ideas that Brazil will be forced to end early – next month – its crushing season thanks to low volumes of cane.

There were technical factors too, with New York's March lot managing to build on its close just above the 50-day moving average of 25.13 cents a pound in the last session.

While Egypt over the weekend postponed a tender for 50,000 tonnes of raw sugar, saying prices were too high, "such jawboning is not uncommon amongst Egyptian sugar buyers", Luke Mathews at Commonwealth Bank of Australia said.

In London, December white sugar ended 4.1% higher at $680.10 a tonne.

'Meaningful rain'

That was miles better than grains could do, despite getting off to a hot start.

December

wheat

was more than 3.5% up in Chicago at one stage only to finish at $6.10 ½ a bushel, up 0.7% on the day.

While some covering of funds' heavy short positions was noted, ahead of key US Department of Agriculture reports due on Wednesday, it was counteracted by the better prospects for production of [Kansas-traded] 2012 hard red winter wheat brought with rain on the southern Plains, boosting sowing hopes.

"Meaningful rain did occur in the hard red winter wheat area - about 75% of the area received 0.5-3.5 inches," US Commodities said, adding that about 15% of the area remains dry.

Kansas's December contract added 0.2% to $6.86 a bushel.

'Fundamentally bearish'

Besides, there were ideas of better supplies from elsewhere too, with India pegging its 2012 wheat crop at a record 86m tonnes.

And Kazakh agriculture minister Asylzhan Mamytbekov forecast the former Soviet Union's grain harvest this year at 22m-23m tonnes, a high since Soviet times.

With concerns over Ukraine's greater export threat still pressing, following parliament's decision to lift export duties, futures in nearby European markets were hardly a bag of enthusiasm.

Paris wheat for November added 0.3% to E184.00 a tonne, while London's November lot gained 0.4% to £147.35 a tonne.

"When we add fast filling pipelines across Europe - many quality buyers are now filled through December - and the move by Ukraine to do away with export duties on wheat, the picture remains fundamentally bearish for wheat," Jaime Nolan in FCStone's Dublin office said.

"The question one now must ask is, have we priced in all near-term fundamental weakness in this market or is there still more to come?"

Ethanol mandate revamp?

And that pressed on

corn

too, alongside increasing conversation over moves by some US politicians to press for a change to renewable fuels legislation, such that mandates for corn-based ethanol are lowered in times of thin supplies of the grain.

"Had this law been in effect this year, the mandate for 2011 would have been reduced by 15% given last November's stocks-to-use ratio of 6.2% for the 2010-2011 crop year, and then been reduced by 25% given USDA's June stocks-to-use ratio of 5.4%," is how Paragon Economics and Steiner Consulting illustrated the law would work.

In more easy-to-understand terms, "that reduction would free up 1.18bn bushels of corn to be used as ethanol, meat/poultry and corn prices dictate".

'This is unheard of'

That said, the grain had something to crow about too, with talk of a strong basis for spot buyers – of as much as $0.16-a-bushel over futures in Decatur, Illinois, termed by Darren Dohme at Powerline Group the "corn crushing capital of the world".

"This is unheard of" in the "gut slot of harvest", when extra supplies should press on prices.

"The basis is normally $0.15-0.20 under the futures for this time of year."

December futures ended up 0.8% at $6.05 a bushel in Chicago, after touching $6.18 ½ a bushel earlier.

'Dryness hurting yields'

Still, it was

soybeans

which did best, adding 1.9% to $11.77 ½ a bushel for November delivery, helped by thoughts that the dry harvest weather may have gone too far for farmers' good.

"The dryness of the soybeans is hurting yields in the western Corn Belt," US Commodities said.

China buying was high on the agenda too, after the import estimates from the country's crop bureau earlier, and talk it was already on a spree.

"It is believed China has purchased 22 cargoes of soybean/soyoil in the world markets recently," the broker added. And remember, China was meant to be on holiday last week.

By Agrimoney.com

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