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Evening markets:weather woes save grains from dollar rampage

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Commodities needed a strong card to counter the impact of a revived

dollar

. And only some crops had one.

The greenback, which has edged successively lower for two weeks, rebounded 0.9% against a basket of currencies, helped by euro weakness.

While an Italian bond auction went with some gusto - with the country paying 3.25% to sell E9bn of six-month paper, half the rate a month ago – the euro's decline to an 11-month low against the greenback was blamed on concerns about clearing banks.

News that banks placed E452bn ($590m) with the European Central Bank on Tuesday for overnight deposit raised concerns over why they were not trusting rivals, which offer better rates.

'A strong dollar represents a headwind for dollar-denominated assets such as many commodities, making them more expensive for buyers in other currencies.

Indeed, the average raw material lost 0.7% as of 18:40 GMT, according to the CRB index, with Brent

crude

down 1.4%.

'Substantial producer/trade selling'

New York raw

sugar

found the stronger greenback difficult to resist, falling 1.6% to 23.61 cents a pound for March delivery, caught for now in what looks like a bit of a trading range.

"It seems there is substantial producer/trade selling towards the 24 cent level and the market is finding it difficult to penetrate this resistance," Nick Penney at Sucden Financial said.

Meanwhile, there has "also been physical interest and tenders have been called by Syria and Bangladesh and there was reported interest in other quarters recently while New York was near 23 cents a pound".

New York

cocoa

for March renewed its fall, by 3.8% to close at $2,133 a tonne, despite reports of rising farmgate prices in Ivory Coast, where buyers are reportedly paying more amid concerns that the strong start to deliveries will not persist.

Farmgate prices were seen rising more than 10% week on week.

'Only going to cause a lot of problems'

However, Chicago crops did have the trump card of poor weather in South America.

The weather forecasts looked no better on Wednesday, with WxRIsk.com warning that "over the next seven days temperatures will continue to run hotter than normal across south central Argentina and spreading into central and northern Argentina by January 1".

As for rainfall, that "will run at 25% of normal or lower across all of central eastern and northern Argentina except for the far northwest portions up near Bolivia", a "dry pattern" that will extend to "all of south eastern Brazil and eastern Paraguay as well as Bahia and north eastern Brazil".

Meanwhile, eastern and central areas will see rainfall that "will range from 200-400% above normal", WxRisk said.

"Given the amount of rain these areas have seen so far, these sort of excessive rainy conditions are only going to cause a lot of problems," as farmers are already worrying about.

'Supplies are expected to be ample'

Sure, this factor did not necessarily bring with it further gains, with January soybeans for a second succession finding the $12-a-bushel mark - $1 a bushel above where they stood a week ago – a tough nut to crack.

And, after all, a poor start to 2011-12 for US soybean exports has raised concerns about just how tight supplies will be even if South America has a disappointing, if not dismal, crop.

"US soybean ending stocks are estimated to increase in next month's supply and demand report with US export sales trailing pace needed to meet current demand estimate," Benson Quinn Commodities said.

"US soybean supplies are expected to be ample and able to absorb any additional demand that could arise for lower South American production."

Profit-taking?

Furthermore, as US Commodities said, "soybeans are not yet at the critical development period", being planted generally after

corn

, for which the impact of this month's hot and dry weather in large parts of Argentina, Brazil and Paraguay could be more acute.

"The trade is less concerned about the soybean yield loss at this time."

And anyway, a "short holiday week could trigger some profit taking heading into the long weekend", Benson Quinn said, with new year's day holidays in many countries, including the US, on Monday.

January soybeans stood 0.2% lower at $11.97 ½ a bushel.

'Hit at a poor time'

However, that was better than most risk assets, if worse than corn, which added 1.2% to $6.40 ¾ a bushel, taking greater succour in the weather concerns given that it is currently more exposed.

"The heat/dryness hit at a poor time. We are in the middle of pollination," US Commodities said.

"Some in the trade are now trying to compare the hot/dry pattern in South America to 2008-09. the year that Argentina corn production was cut about 25%.

"The fear remains that the South American corn crop could be cut 5m-10m tonnes. This could equate to higher US exports."

Soaring cotton

Given the unusual proximity of corn and

wheat

prices, the latter got a boost from firmness in its fellow grain, adding 1.2% to $6.51 ½ a bushel for March delivery.

Wheat is also being helped by the better sentiment on crops prompting a round of short covering by speculators, whose net short position stands near record highs.

However, even Chicago grains could not keep up with New York

cotton

, which stood limit up at one point, before easing back to 91.41 cents a pound for March delivery, up 4.0% on the day.

Agrimoney.com has yet to discover the reason for this rise, although moves were thought to be being exaggerated by thin trade.

Euro assistance

Earlier buoyant Chicago prices, coupled with help from a weakening euro, sent Paris wheat for January up 1.8% to E200.50 a tonne, the first close for a spot lot above E200 a tonne since early last month.

The better-traded March lot added 1.4% to E193.25 a tonne.

London wheat for January closed above £150 a tonne for the first time since early November, adding 2.5% to £151.00 a tonne.

The May closed up 3.3% at £152.40 a tonne.

By Agrimoney.com

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