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Evening markets:weather keeps enough spice to heat up grains

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There was much in the US weather outlook which, to some analysts, said "sell". What, with Chicago traders, who were on Wednesday basking in 99-degree (Fahrenheit) heat seeing rain on Friday – echoing the improvement in US crop conditions.

"The extreme heat for the Corn Belt has passed," US Commodities said.

Rival broker Benson Quinn Commodities said: "Net soil moistures remain in decline but with easing temperatures, crop stress is expected to moderate."

At Country Futures, Jerry Stowell advised: "Normally selling the rallies works best."

'Not the correct solution'

But traders seemed reluctant to take the advice, with questions remaining about some of the outlook.

Sure the midday GFS model saw the jet stream over the Canada-US border heading further south in the 11-to-15 day outlook, dragging colder and damper air deeper into the major American growing districts which could use a rest from heat.

"But I don't think that is the correct solution since that cool/wet idea has no other model support," David Tolleris at said.

Furthermore, the six-to-10 day outlook still speaks of more hot weather to come, with "areas east the Mississippi River to see the significant heat next week - mid and upper 90s (degrees Fahrenheit)".

And then there was a report from consultancy Lanworth which estimated both soybean and, especially, corn production well below US Department of Agriculture estimates. Being based on satellite data, Lanworth estimates are treated with some respect.

"Could be why markets have been reluctant to pullback much, even with rain falling in Chicago," a US broker told

Goldman cut

Add in a cut by Goldman Sachs late on to its forecast for the US


, by 3 bushels per acre to 156.0 bushels per acre (this may have been released after the market closed), the uncertainty of a weekend ahead, and a generally firm day for risk assets – following the latest rescue package for Greece – and grains found the easy way was up.

Chicago's best-traded December corn contract ended 1.9% higher at $6.85 ½ a bushel, while the September lot gained 1.6% to $6.90 a bushel.

It was even more true of wheat, in which speculators last month built a net short position which has of late been encouraging position closing.

Chicago's September


contract added 2.2% to $6.92 ¼ a bushel, in a performance which far eclipsed sister contracts on exchanges less dabbled in by speculators. September wheat gained 0.7% to $7.80 a bushel in Kansas, and 0.6% to $8.38 ½ a bushel in Minneapolis.

'Giant elephant in the room'

The performance was even worse in Europe, despite some revival in the dollar, making rival US exports that much less competitive. The greenback gained 0.3% against a basket of currencies.

Bargain basement Russian wheat exports were blamed for the decline.

"One cannot ignore the giant elephant in the room that is the Black Sea area discounts in wheat," Jaime Nolan at FCStone said.

With this week seeing upgrades to Russia's grain export estimate, and Ukraine's harvest forecast, "we can understand why, despite quality concerns in Europe, values need to work lower across the European Union", he added.

And there are some quality fears, notably in Poland, the EU's third-ranked grains grower, where "heavy rains these last two weeks have seen between four and seven inches fall and the market remains very nervous, with growing reports of quality buyers making enquiries elsewhere".

Return of the Sukhovey?

To be fair, the Black Sea outlook is not quite so clear cut, with lingering talk of rains turning Ukraine's crop lower quality too.

"There are reports that much of the recently harvested wheat has been downgraded to feed," the UK grain arm of a leading European commodities house said.

And in Russia, "there are some concerns about the return of the Sukhovey, the hot dry wind which decimated crops last year.

"This time, it's turned up too late to affect the winter wheat crop but it may have some impact on the spring wheats."

Nonetheless, Paris wheat for November dipped 0.6% to E193.00 a tonne, while its London peer lost 1.3% to £163.00 a tonne.

Cotton's tumble over?

Returning across the Pond, Chicago


returned to their normal trick of minimal movement, adding all off 0.25 cents to $13.88 ¼ a bushel for the best-traded November lot.


, however, didn't, achieving one of its few recent positive closes, for December delivery at least, by the slimmest of margins – 0.01 cents - to close at 98.64 cents a pound, amid some hope that the round of liquidation is over.

"Cotton prices look ready to stabilise," said Jurgens Bauer at PitGuru, restating a forecast that prices might "seek a floor" between 90 cents and 100 cents a pound.

"Mills may begin to buy, as they sense the drop is over and seek coverage," he adding, noting talk that "Indian mills may be preparing to step up" to purchase.

'Precipitous drop'

But, among soft commodities, it was


which took the laurels, soaring 5.0% to 31.34 cents a pound for October delivery, the highest close since February, as Kingsman took its turn to downgrade Brazilian output forecasts, highlighting the problems facing the top producer and exporter of the sweetener.

London white sugar for October closed up 4.0% at $812.70 a tonne, having hit a contract high of $814.70 a tonne earlier.

It was a different story in


, where London's September lot fell 3.6% to £1,901 a tonne, while New York's equivalent shed 3.4% to $3,065 a tonne, following a warning from ABN Amro of the risk that a "precipitous" drop in prices could be in the offing if supplies ease further.

The bank, whose research is undertaken with VM Group, hiked its forecast for the 2011-11 world cocoa surplus by nearly 50%.


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