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Evening markets: wheat leads ags again, as funds flood in

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Still the buyers keep coming.

The soft start to the day for agricultural commodities ended in something firmer, with both




ending at multi-month highs in Chicago, but


leading the way.

The improvement was in line with broader financial markets, after the run of upbeat US data continued, with inflation last month proving lower than expected.


posted gains of 0.2% in Frankfurt and 0.4% in London, if dicing in New York in late deals with a negative close.

Signally for commodities, the


index dipped 0.5%, with low inflation environments typically seen as strong for the currency concerned.

A weaker greenback improves the affordability of dollar-denominated assets such as commodities.

And, indeed, raw materials overall, as measured by the CRB index, ended up 0.6%.

'Technical buying continues'

Wheat did even better, adding 1.1% to $6.72 a bushel for May delivery, within an ace of setting a six-month high for a spot contract.

Sure, there was some bullish fundamental news around, with Offre Demande Agricole late on heightening concerns over the next European Union harvest by saying winterkill from last month's cold snap had exceeded previous expectations.

Furthermore, broker Allendale issued an estimate for US wheat sowings for this year's harvest which, at 56.6m acres, was 1.4m acres below the US Department of Agriculture estimate.

But much of the increase, which comes after all in the face of ample world wheat inventories, was attributed to agricultural commodities' increased place in speculators' affections.

"Fund and technical buying continues," US Commodities said, noting increased levels of open interest, ie live positions, on Thursday in all of Chicago's big three crops.

Fund appeal

In the UK, traders at a major commodities house said: "The lion's share of the trading activity in the Futures markets this week has been by the investment funds.

"It follows, therefore, that some of the arguments driving the market upwards do not bear the closest scrutiny.

"What's more, with the agricultural markets showing far better gains over the last few weeks than just about anything else, all sorts of investors and fund managers are now dabbling in the grains and oilseeds."

Signally, Chicago soft red winter wheat, speculators' favourite wheat contract, fared better than Kansas hard red winter wheat, which gained 0.1% to $7.05 ½ a bushel, and Minneapolis spring wheat, which closed up 0.3% at $8.22 ¾ a bushel for May.

In Paris, May wheat ended down 0.2% at E213.75 a tonne, feeling a currency headwind from dollar weakness/euro strength, while London wheat for May edged 0.3% higher to £172.50 a tonne – a small rise but enough to give the contract its highest close since September.

China talk

Chicago wheat's performance was enough to pull the May contract just back to 1 cent below May corn, which ended up 0.6% at $6.73 a bushel, its highest since November.

Which might not have been expected, given the talk of Chinese buyers snooping around for supplies cheaper than at home, where the grain on the Dalian exchange closed at a fresh record high of $10 a bushel.

"There is also still optimism that China will buy more US corn in addition to the 240,000 tonnes announced on Tuesday," Darrell Holaday at Country Futures said.

Still, US Commodities came up with a potential fly in the ointment, should China decide to run down its stocks of old crop corn, to replace with advance orders of corm from the forthcoming harvest, which is nearly $1-a-bushel cheaper.

"China could easily sell old crop corn in storage and replace it with cheaper new crop. This spread sets up some big trades around the world," the broker said.

This assumes, of course, that China has much in the way of stocks to sell, of which there are some doubts.

'Record production'

As another downer for corn prices, Allendale issued a reminder of the huge US supplies that could lie ahead.

Allendale's 2012 US crop acreage estimates and (USDA's forecasts)

Corn: 95.012m acres, (94.0m acres)

Soybeans: 74.495m acres, (75.0m acres)

All wheat: 56.609m acres, (58.0m acres)

Includes winter wheat: 42.185m acres

Durum wheat: 1.801m acres

Other spring wheat: 12.623m acres

Informa Economics' latest estimate (and amid some doubts as to whether farmers will manage to get it all planted).

Factoring in Allendale's estimate for yield of 161.4 bushels per acre, its sowings estimate "would imply record production of 14.092bn bushels", the broker said.

The December corn contract gained, but lagged the May lot, closing up 0.4% at $5.74 ¼ a bushel.

Strong Brazilian cash market

Soybeans faced the setback if continued warnings of being technically "overbought", if still receiving support from ideas of Chinese buying in the face of disappointing US harvests.

Indeed, Brazilian supplies are losing competitiveness, with the "basis surprisingly continuing to tighten as the harvest progresses", US Commodities said.

"Brazil's soybean basis is now $0.70 over [futures]."

Chicago's May contract added 0.6% to $6.73 a bushel.

Cocoa revives

Soft commodities were broadly firm too, if fuelled in


by what looked like a bout of short-covering, following heavy losses earlier in the week when Ghana came out with an upbeat (if disputed) estimate for 2011-12 production.

Cocoa for May added 1.6% to $2,256 a tonne in New York.



managed to hold on to some support from Thursday's bumper US export data, adding 0.1% to 87.48 cents a pound for May delivery.

But New York raw


felt a negative from profit-taking after its 4% jump in the last session, easing 0.4% to 25.41 cents a pound.


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