Evening markets: farm commodities march to Chinese tune

It just shows how powerful China has become in food commodity markets, when the country reveals the power to send crop futures tumbling and rising on the same day. And when it is on holiday too.

The falling bit was the reaction to another Chinese interest rate rise in the face of rising inflation.

"The rate increases had been widely expected by the market although the timing was a bit surprising with China's markets shut for Lunar New Year holiday," Benson Quinn Commodities said.

With the last rate rise on Christmas Day, China might appear to have a penchant for minimal publicity.

Demand factor

Not that China's 0.25-point rise to 6.06% in its benchmark rate went unobserved, especially among sugar investors, who sent New York's benchmark March lot tumbling 4.7% to 31.08 cents a pound.

London white sugar for March closed 3.7% lower at $768.70 a tonne.

And this despite a 500,000-tonnne trim to 25m tonnes in the estimate by the Indian Sugar Mills Association of output in the world's second-biggest producing country, albeit to a figure which some other observers have already landed on.

"The newswires are littered with tales of woe from Australia damage to India production write down revisions but the puzzle seems more to be with building a picture of the demand side of the equation," Thomas Kujawa at Sucden Financial said.

And, after all, China is taking a bigger role in sugar expectations, with many analysts believing a series of seasons of imports is a structural issue rather than a short-term fad.

'More concerns, more problems'

But the up bit of the China equation, that applied to wheat, when the United Nations Food and Agriculture Organisation (FAO)crystallised concerns about the country's winter wheat crop, the world's biggest.

(China is easily the top-ranked wheat producing country, and spring wheat accounts for all but about 5%.)

An extreme freeze could "devastate yields" for a winter wheat crop which for four months has gone without much moisture, either as rain, with direct moisture benefits, or snow, to provide a blanket beat off the cold, the FAO said.

And that kind of caution "unnerves the trade", Don Roose, president of broker US Commodities, said, adding that "it means more concerns, more problems".

Export support

It wasn't the only boost that wheat got either, with plenty of buyers around too, through tenders from the likes of Algeria, Bangladesh, Iraq and Turkey in the last few days.

"The US export line-up continues to support wheat," Darrell Holaday at Country Futures said, with an easing in the dollar providing further help, making American shipments that much more competitive.

Chicago's March lot closed up 1.8% at $8.74 ¼ a bushel, a two-year closing high for a spot contract.

Kansas wheat did even better, adding 1.9% to $9.72 a bushel for March.

Currency factors

European lots were not so impressive, with much of the rise in Chicago, the global bellwether, coming too late to prevent a 0.6% dip to E276.00 a tonne in Paris wheat for March delivery.

A stronger euro did not help matters.

London wheat had the benefit of a weakening currency behind it, after the UK government announced an extra £800m in bank levies, turning investor sentiment against the country.

Still, the March contract eased 0.2% to £206.00 a tonne.

'Up and down like a yo yo'

Back in Chicago, corn failed to enjoy the rebound of its grain peer, although the March contract's losses diminished to 0.25 cents, leaving it at $6.73 ¾ a bushel at the close.

Wheat's performance, in fact, may have been part of the problem, with analysts noting the predominance of spreading between the two grains – ie sell wheat and buy corn, or vice versa, with relative impact on their prices.

"Wheat-corn spreads have been up and down like a yo yo," Jerry Gidel at North America Risk Management said.

"It may be that some investors who bought corn yesterday and sold wheat were doing the reverse today."

Meanwhile, soybeans for March closed 0.7% higher at $14.34 ¼ a bushel, on a rally attributed to tomorrow's US Department of Agriculture Wasde report, giving updated estimates for world crops.

The report is expected to trim further the official forecast for domestic soybean stocks at the close of 2010-11.

(Source: http://www.agrimoney.com/marketreport/evening-markets-farm-commodities-march-to-chinese-tune---957.html)