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Weakening dollar sends US crop prices jumping

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It was a market of two halves for grains on Monday – America and most of the rest of the world – as the weakening of the dollar to its lowest for 15 month set off a US rally that markets in Europe found difficult to enjoy.

The greenback slipped 1% against a basket of currencies to its lowest since August last year. The euro touched $1.5020, back near last month's 2009 high.

The spark was the conviction that US interest rates would remain low after a G20 meeting at the weekend, and last week's soft jobs data, did little to change expectations of an economy that needed continuing monetary help.

And a lower dollar is supportive for prices of assets denominated in the currency, such as oil, which stood 2.4% higher at $79.28 a barrel at 21:10 GMT, and crops. American crops, at least.

Short positions

In Chicago, corn led the charge, in percentage terms, jumping 5.2% to end $3.86 a bushel.

The size of the jump was helped both by thin volumes, which can mean smaller traders take on an exaggerated importance, and short-covering as the funds which sold off at the end of last week saw cause to regret their decision.

"The big sell off the last couple of days last week brought many new shorts into the market and a lot of them are covering these shorts," Vic Lespinasse, the GrainAnalyst.com analyst, said.

An additional cause to trim positions is the prospect on Tuesday of the US Department of Agriculture's latest monthly report on global crop supply and demand, a highlight of the commodities calendar.

'A guess'

This report is viewed as particularly significant as it is based increasingly on objective harvest data, rather than more subjective analysis earlier in the growing season.

However, that makes the revisions more difficult to predict, some analysts say.

"It's all a guess," Tim Hannagan at PGBest said, writing of analysts' predictions that soybean production will be called higher, despite the rain and frost of the last month.

Whatever, with the dollar so weak, Chicago soybeans had reason enough to rise, with the November contract adding 1.7% to $9.64 ¼ a bushel, and the better-traded January contract closing up 1.8% at $9.72 a bushel.

Wheat, meanwhile, charged 4.6% ahead to $5.20 a bushel for December delivery, and nearly getting to parity once more with its Kansas equivalent.

Kansas wheat, the hard red variety rather than the soft red Chicago trades, added 4.1% to $5.21 ¾ a bushel for December.

Black Sea news

It was a different story in Europe, however, where stronger currencies prevented contracts enjoying more than smaller rises, if any at all.

Paris wheat for November lost E1.25 to E125.50 a tonne, with the January lot shedding E0.25 to E131.25 a tonne.

London November feed wheat gained £1.10 to £105.10 a tonne, with the January contract closing £0.25 higher at £107.15 a tonne.

Further upbeat news from the nearby Black Sea also dimmed the mood a touch, with Russian winter grain plantings estimated by Sovecon at their highest since 1993, while Kazakhstan added 1m tonnes to its grain export forecast.

Softs surprise

If there was a surprise, it was that soft commodities didn't ride the dollar rally too.

As it was, New York raw sugar eased 0.02 cents to 22.41 cents a pound for March delivery, while cocoa for December settled down $41 at $3,179 a tonne.

Technical factors were blamed for the decline, with a bit of fund selling. Speculators have been showing signs of preferring to take money off the table, with prices still near historic highs.

Orange juice, as often of late, bucked the trend of other softs, ending up half a cent at $1.121 a pound for November delivery.

USDA crop data on Tuesday will be closely watched for further comments on the size of a forecast drop in Florida's citrus production.

By Agrimoney.com

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