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Evening markets: wheat wilts on weak day for commodities

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Where exactly are we in the economic cycle? Monday was marred by worries in many markets that this phase of economic growth was past its best, at least in the two major economies, China and the US.

Chinese money growth was on Monday revealed at a 30-month low as Beijing attempts to keep inflation in check. (Just how successfully will be revealed on Tuesday, with latest Chinese inflation data.)

Market fears were heightened by, another, downgrade to Greece's sovereign debt rating, by Standard & Poor's, which cut its assessment on the eurozone country by a massive eight notches from B to CCC.

Greece now has the lowest credit rating of any country covered by S&P, and poses the question of just how long the credit rating agency's alphabet goes on for.

Seven inches of rain - to come

Many raw materials struggled, with the CRB index down 1.0% in late deals. New York

crude

was down twice that much, at $97 a barrel, amid concerns over lower demand.

And agricultural commodities this time had no escape from the raw materials malaise, even Minneapolis spring

wheat

, which had the fundamental support of further rain forecast for growers trying to get crop sown against dismally wet conditions.

"More excessively heavy rain is likely to fall over portions of the Dakotas and over south central Canada," weather service WxRisk.com said, noting that "some locations by June 20 could see seven inches of rain".

That's not helpful when, as Matthew Pierce at PitGuru pointed out, northern North American growing areas "Canada included, have seen their window closed.

"In southern Canada - Manitoba and Saskatchewan - traders are hearing of major stretches of land going unplanted".

Gulp. (And extra rain is bad news further downstream too, with "the flooding conditions are likely to get worse across the Missouri river over the next 10 days", adding a further nail to the coffin of inundated fields of row crops further south.)

Wheat ethanol?

Still, Minneapolis spring wheat fell 1.5% to $9.85 ¼ a bushel for July. And with the wheat with the best fundamentals flagging, the rest of the complex had no chance.

Kansas hard red winter wheat, which is in the early stages of harvest and reportedly had not suffered the drought damage that traders had feared, was 2.0% lower at $8.51 a bushel.

Chicago soft red winter wheat did even worse, despite talk noted by Darrell Holaday at Country Futures that "some eastern Corn Belt ethanol producers are actively buying soft red winter wheat to put on their plant".

While that worked in the last session in supporting the July lot, the contract this time closed down 2.1% at $7.43 a bushel.

'Spread could become extreme'

Indeed, wheat lost further ground against Chicago corn even though it was weakened by oil's softness – an important consideration for a major bioethanol source – and the prospect of rain to help crops already in the ground.

"There is a long way to go for the current crop, but the current weather pattern is generally favourable and the condition is improving," Mr Holaday said.

Nonetheless, corn gained continued support from last week's official data showing inventories on course to end 2011-12 far tighter than had been thought.

"The spread between wheat and corn has inverted and could become extreme if short covering continues in corn," James Mound at Mound Trade Signals said.

Resilient beans

Soybeans

did best, helped by expectations that the rain which was keeping corn crops moist would slow sowings of the oilseed.

"Previously, I felt the trade was looking at around 88m acres [in US sowings] for corn and 78m-79m for soybeans," Mr Pierce said.

"Now with the most up to date information I have to put corn at or around 89m with soybeans aiming for 76.5m acres."

Still, soybeans struggled to fight the tide, and ended 0.3% lower at $13.82 ¾ a bushel for July.

Wetter Europe

In Europe, contracts had weather forecasts to battle, despite the weaker dollar making US exports that much more competitive.

The UK has seen heavy showers over the weekend (indeed, just as drought was announced) with France seeing lighter precipitation.

The next week looks like bringing further "significant rain" over the UK, Denmark, southern Norway and southern Sweden, WxRisk.com said.

The French and German outlook is not quite so wet, with "off and on scattered showers but no significant rainfall", but still better than farmers have got used to.

Paris wheat for November tumbled 3.1% to E224.00 a tonne, with London's November lot ending down 2.2% at £180.35 a tonne.

Production improves

Nor did soft commodities provide a citadel for bulls, with New York

sugar

following up what Nick Penny at Sucden Financial termed "jaw dropping" gains last week with a 0.2% slip to 25.59 cents a pound for July delivery.

"Weather in Brazil has been excellent for harvesting, even if rain at times at the ports heightens the loading problems," Mr Penney added.

Indeed, data from Brazilian cane industry group Unica showed a pick-up in May in sugar output in the world's top producer of the sweetener.

"This quick advance in harvesting was possible thanks to the extremely dry weather in the last half" of the month, Unica said.

'Dead-cat bounce'

James Mound came in with technical reasons for bearishness, highlighting that premiums on sugar put options "have seen a drop in volatility premium during this rally", apparently a negative sign.

"I believe sugar is experiencing a dead-cat bounce and should see aggressive selling as this rally hits an exhaustion point," he said.

Meanwhile,

cocoa

dipped on continuing signs of decent exports coming out of Ivory Coast, the top producer.

London's July contract closed down 0.6% at £1,838 a tonne, with its New York peer given some protection by the falling dollar, closing up 0.1% at $3,001 a tonne.

By Agrimoney.com

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