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Late markets: crops suffer Bernanke blow

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Farm commodities took their share of the reverse in financial markets following a warning on the US economy from Ben Bernanke, the Federal Reserve chairman, with wheat slumping nearly 8%.

Mr Bernanke said that America's budget deficit posed a risk to the country's financial stability, firing a warning shot at government borrowing plans.

"Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth," he said in testimony to US lawmakers.

"Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance."

Oil drilled

The comments sent equity markets flying – London and French stocks closed down 2.1%, although New York stocks recovered some lost ground to close 0.7% lower.

The dollar added 1.2% against a basket of major currencies as investors rushed back to safety. A stronger dollar is viewed as bad news for dollar denominated commodities, making them more expensive to foreign buyers.

Oil even had the additional news of higher-than-expected US crude stockpiles to deal with. New York crude for July stood 3.3% down at $66.31 a barrel at 20:00 GMT, with Brent crude off 3.1% at $66.09 a barrel.

'Overdue for a correction'

Against that backdrop, weakness in food commodities was to be expected.

"It is looking increasingly like the market is undergoing a technical correction after making eight month highs in several pits recently," Vic Lespinasse at GrainAnalyst.com said.

"The increasingly widespread thinking that prices are overbought and overdue for a correction - or at least a period of consolidation - is likely to make sellers out of many speculators."

Wheat fell the full impact, closing down 52.00 cents, or 7.8%, at $6.17 ½ a bushel for Chicago's July contract, wiping out all its gains of the previous week.

Across the board

European wheats were protected somewhat by the stronger dollar. Even so, the scorecard did not make pretty reading, with London's November contract ending down £4.25, or 3.2%, at £128.50 a tonne. Its Paris equivalent tumbled E5.75, or 3.5%, to E157.25 a tonne.

Chicago's July soybeans, while falling a relatively modest 27 cents, or 2.2%, surrendered the $12 a bushel mark on which had focused traders' attentions last week. The contract finished at $11.82 a bushel.

Investors abandoned even corn, which has been supported by forecasts of a market squeeze. Chicago's July contract stood 17.00 cents, or 3.8%, lower at $4.34 ½ a bushel, with new crop contracts showing similar losses.

Cocoa bucks trend

Many softs were hard hit too. New York sugar for July lost 3.7% to 14.87 cents a pound, with London white sugar for August off 3.5% at $436.1 a tonne, well below the near-three year high of $457.00 reached on Monday.

That left the 3.1% drop to 137.55 cents a pound in New York arabicas looking relatively light. London robusta coffee beans for July, meanwhile, eased only 0.8% to $1,535 a tonne, protected by the weaker pound.

The joker in the pack was cocoa, which turned around from earlier losses to close up 1.0% at a two-month high of $2,725 a tonne in New York for September delivery, and 2.6% higher at £1,742 a tonne in London.

Some traders credited the revival to over-exuberant short covering. Investors may also have been cheered by reports of rising farm-gate cocoa prices in Ivory Coast, the world's main producer of cocoa beans, thanks to growing demand from grinders.

By Mike Verdin

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