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Evening markets: sugar, wheat lead rally in ag commodities

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The gentle buying of agricultural commodities early on Thursday ended in something of a stampede, as funds scrambled for exposure to the sector.

OK, a positive mood in external markets played its part, with

shares

generally posting gains (the exception being London stocks which closed down 0.1%) and, signally, the

dollar

tumbling 0.5%, in a decline attributed to profit-taking.

A weaker dollar improves the affordability to buyers in other currencies of dollar-denominated assets such as many commodities.

But raw materials overall didn't get too excited, with the CRB index added 0.2%, weighed down by a 1.1% drop in Brent

crude

on talk of powers such as the US digging into reserves to stop high energy prices crimping economic recovery.

Forward roll

It required something special to get investors really interested.

Raw

sugar

had it in further talk of a late start to the production season in Brazil's key Centre South district, besides an estimate by Datagro for the region's cane crop at 518.3m tonnes, below some other recent forecasts.

"Continued reports that the start of the Centre South Brazil crop will be delayed due to dry weather circulate around the market," Nick Penney at Sucden Financial said.

Furthermore there is talk that producers have rolling forward positions for delivery from May into later contracts, "which would make sense if they are worried that they will be short of the physical material to ship in the early part of the harvest".

'Exiting short structure'

Furthermore, thinking of Cargill's huge purchase against New York's expired March contract, "the perception is of nearby tightness", Mr Penney said.

"It has been pointed out that there is still time for weather to change in Centre South Brazil before the beginning of the crush.

"But those without deep pockets are already exiting short structure and short flat price positions."

New York raw sugar for May jumped 4.3% to 25.50 cents a pound.

'Very solid sales'

Corn

and

soybeans

had a boost too from huge weekly US export sales.

For corn, export sales were put at 836,000 tonnes, well up on last week and on market forecasts.

For soybeans, the figure was of approaching 1.4m tonnes, blowing away traders' expectations – and including a healthy ration of purchases from the sensitive market of China too.

"Weekly soybean export sales were once again very solid in soybeans with China buying over a 1m tonnes of old and new crop combined," Benson Quinn Commodities said.

Price gains

That fuelled a rally in prices of both crops which left May soybeans at $13.69 a bushel at the close, a six-month high for a spot contract.

May corn gained 1.6% to $6.69 a bushel, signally closing above its 200-day moving average for the first time in four months.

Still, it was wheat which gained the most, adding 3.3% to $6.64 ¾ a bushel.

And this despite dismal weekly wheat US export sales, and signs of lost competitiveness, to judge by results from Egypt's latest tender.

'Spiked the wheat'

The increase reflected in part funds' enthusiasm for crops.

"Fund buying continues under the market. Technical buying continues," US Commodities said

.

But for wheat in particular given its, unusual, discount to corn, likely to promote substitution in feed uses, the growing reports from Europe of weather damage to crops.

And the rise was all supercharged by a barrage of buy orders - in a contract prone to such phenomena in Chicago, where speculators have large numbers of short positions, which they are prone to closing in a hurry when prices look like latching onto a rising tide.

After the US export sales data initially "pushed the corn and wheat up, then a buy stop order on the Chicago wheat spiked the wheat further", grain traders at a major European commodities house said.

The rise was reflected in Paris, despite pressure from a rising euro, with the May contract added 2.0% to E203.00 a tonne.

London wheat for May closed up 0.9% at £172.00 a tonne.

By Agrimoney.com

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