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Morning markets: dollar rise saps cotton, sugar, soybeans...

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Will the rise in the


never stop?

The greenback on Wednesday stood up a further 0.2% against a basket of currencies at 09:00 UK time (03:00 Chicago time), and earlier hit its highest level since September 2010.

That is, of course, that is not good news for dollar-denominated commodities, in making them less competitive exports.

The strong dollar has "made commodities more expensive for those holding other currencies, contributing to price weakness", Lynette Tan at Phillip Futures said.

'Major factor in price weakness'

And the effect is made more notable for agriculture markets by the particular strength of the dollar against commodity currencies, such as the Brazilian real, the Indian rupee, which hit a fresh record low on Wednesday, and the Australian dollar.

(Or rather, with commodities faring badly, evident in the close of the CRB index last night at its lowest since October 2010, currencies of commodity exporting countries have, besides the precarious euro, fared particularly poorly.)

On Tuesday, the "Australian dollar is below Aus$0.98 against the US dollar and the Brazilian real fell a hefty 2.3% against the US dollar", Paul Deane at Australia & New Zealand Bank noted.

"Since March, the Brazilian real has depreciated 23%. This should work in favour for Brazilian exports versus US, but has also been a major factor in price weakness in US dollar terms for






," for all three of which the country is a major exporter.

'An interesting take'

So it is little surprising, for instance, that rumours have stuck around of China shifting demand for


to South America - despite the disappointing Argentine, Brazilian and Paraguayan harvests.

Indeed, Kim Rugel at Benson Quinn Commodities said that talk of importers shifting from the US "seems an interesting take on the supply situation, with Brazilian producers having little product left to sell".

Consultancy Abiove cut to 64.95m tonnes, from 67.9m tonnes, its forecast for the Brazilian soybean harvest, in line with the US Department of Agriculture's 65.0m-tonne estimate.

'Stocks will be nominal'

"A more likely scenario would seem to be China deferring sales to new crop in quest for cheaper values.

"Either way, in the end, the US 2012-13 soybean stocks will be nominal at best before South American production comes off the fields next spring leaving global undersupplied for the foreseeable future with US new crop production little than assured."

Still, investors seemed happy enough to sell down further some of their hefty net long position in Chicago soybeans on what remained a somewhat febrile atmosphere on financial markets, encouraging the "risk off" trade.

The July contract lost 1.1% to $13.67 ¾ a bushel, while the new crop November lot shed 1.2% to $12.67 ¼ a bushel.

Softer softs

And in sugar and cotton, of which both Brazil and India are major exporters, the impact was compounded by the softness in the rupee, which hit 56 to $1 earlier.

"Currency weakness in producing countries and the stronger dollar has added downside" to pricing, Ms Tan noted.

"The Indian rupee dropped to a record low against the dollar, while Brazil's real has been one of the weakest performing major world currencies this year."

'No global sugar supply concerns'

Raw sugar for July dropped 0.6% to 19.68 cents a pound in New York, hitting 19.53 cents a pound earlier, the lowest for a spot contract since August 2010.

"In addition, record exportable sugar supplies in Thailand continue to offset the slow start to the Brazilian sugarcane harvest, ensuring there are currently no global sugar supply concerns," Luke Mathews at Commonwealth Bank of Australia noted.

Cotton for July, which closed the last session down the exchange limit, fell a further 1.4% to 73.49 cents a pound, and hit a 27-month low of 72.14 cents a pound earlier.

ANZ's Paul Deane said: "New crop southern hemisphere production from Brazil and Australia is entering the export market, with the collapse in the Brazilian real adding to pressure on origin pricing."

'Ease production fears'

The stronger dollar was hardly a help to


too, which was already struggling to cope with the ideas of increased rainfall in Russia and Ukraine which have eroded crop fears.

"Forecasts for beneficial rain across Ukraine, Russia and Australia may help ease some of the production fears that had entered the market over the past week," Mr Mathews said.

Agritel said: "Even if there is a dry weather pattern over the south of Russia, things are not comparable with 2010 yet," echoing comments from SovEcon on Tuesday.

Wheat for July fell a further 1.0% to $6.79 a bushel in Chicago, and by 0.5% to $6.98 ¼ a bushel in Kansas.

Rain limitations

Still, there was one Chicago crop which did rise, and that was


, as investors took heed of warnings that rain injected into forecasts on Tuesday may not be so widespread.

"The trade may be making this assumption that because Minnesota the eastern Dakotas and northwest Wisconsin are going to see significant rains, everybody in the Midwest is going to see a good rain from this front," said.

"Clearly, the model data does not show that," with "very little significant rain over 0.25 inches" on May 24-28 in Missouri, Illinois, Michigan, Kentucky, Ohio and Indiana.

And after, all the US soil moisture level was on Monday reported to be the seventh driest in records going back to 1895.

Corn for July added 0.8% to $6.01 ¾ a bushel, with the December lot up 0.3% at $5.23 ½ a bushel.


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