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Evening markets: sugar's strong gains - just - beat wheat's

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It took Chicago's grains some time to find their feet and follow

sugar

in rocketing higher.

But they managed in the end, with Chicago

wheat

closing up 5.1% for September delivery - not far short of the sweetener's achievement.

New York's October raw sugar contract closed up 5.4%, at 30.49 cents a pound for October, a four-month closing high for a spot contract.

Still, wheat came nowhere near matching London white sugar in notching up a record high, of $858.30 a tonne for the August lot, which closed at $857.00 a tonne, up 4.8%.

Frost damage?

Both surges were fuelled by data. In sugar's case, by the prospect of Unica, the Brazilian cane industry group, reducing production hopes.

"It is rumoured that Unica will reduce its estimate of final outturn figure for 2011-12 to 535m tonnes cane crushed," Nick Penney at Sucden Financial said.

"This is a sharp fall from the 568.50m tonnes originally forecast." And, with Unica data beginning to gain a reputation for leaking early (in this case before publication set at 14:00 Brazilian time on Wednesday) the talk was given some credibility too.

Furthermore, "what also may surface is fears that recent cold weather and frosts, especially in Parana, may have affected young cane planted for next season" in the top sugar-producing country.

Bullish surprises

For Chicago grains, the spurring statistics were in the monthly US Department of Agriculture Wasde report on global crop supply and demand, of which actually the most bullish surprises were in

corn

.

The Wasde raised estimates for corn stocks at the close of 2010-11, and especially for next season, by far less than the market had expected, flagging higher consumption.

But the slow-burn reaction was in part to greater notice being taken of external markets, which managed later on to shift concerns over Italian debt, following a reasonably well-received auction of short-term Italian bonds.

The revival in sentiment enabled US shares to post small gains in late deals, and the

dollar

to slip 0.2% into negative territory against a basket of currencies, so improving the case of dollar-denominated crops as export.

'Substantially hotter'

Furthermore, there was a turn worse in late weather forecasts too, regarding the heat dome to hit the US Midwest, and how long it might last.

One weather model, the 12 ZGFS, "is substantially hotter than what was earlier this morning or yesterday", looking out more than two weeks, WxRisk.com said.

"The model keeps the heat dome over the Midwest - centred over Missouri and western Illinois - for a longer period of time - past July 20, out to July 22-23.

"At that point the model weakens the dome but it still has a large broad heat ridge covering all the Plains and the Midwest."

'Smells of China'

In other words, as Darrell Holaday at Country Futures put it, "the outside factors turned friendly and the weather forecasts are sparking concern as the industry realises that the current projections still indicate a large amount of annual use of corn, and any faltering of yield will be a problem very quickly".

Furthermore, the USDA, through its daily reporting system, unveiled the sale of 233,000 tonnes of corn to an unknown destination, strong believed to be the usual suspect.

"This smells of China yet again," Matthew Pierce at PitGuru said.

Corn closed 3.3% higher at $6.64 a bushel for the September contract, with the best-traded December lot up 4.0% at $6.58 a bushel.

'Extremely oversold'

Mr Holaday added: "The strength in corn is very helpful to the wheat values. Both have been extremely oversold, which is making the reaction upward more substantial."

And, in fact, many analysts have been pondering speculators' return to elevated levels of short bets in Chicago wheat, wondering whether this could provide the recipe for a spike in prices as these positions are covered.

The September lot ended at $6.72 a bushel, regaining a premium over its Chicago corn peer.

December wheat added 4.6% to $7.05 ¼ a bushel.

Black Sea factor

Grains' gains were not echoed across the Atlantic, in part because many of them came after European futures exchanges had closed, and in part because of lingering concerns over those bargain Russian exports.

"The USDA report only had a limited effect [in Europe] as the market is more focused on the cheap wheat coming out of the Black Sea. Until that plays out, the gains maybe limited," the UK grain arm of a major European commodities house said.

That said, the Wasde briefing at least cut forecasts for Ukrainian wheat exports, by 1.0m tonnes, while lifting them for Russia, by 2.0m tonnes.

Paris wheat for November added 0.3% to E191.25 a tonne, while London's November lot fell 0.6% to £161.50 a tonne.

Lagging beans

Back in Chicago,

soybeans

lost their title of best-performing Chicago crop, weighed down by, arguably, coming out least bullish of the three main crops from the Wasde.

While the USDA did lower its estimates for domestic stocks at the close of 2011-12, to 175m bushels, the figure was marginally ahead of forecasts.

Soybeans for August closed up 0,7% at $13.55 ½ a bushel.

By Agrimoney.com

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