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PM markets: wheat dodges strong euro. Sugar futures recover, 05.09.17

Is the euro becoming a safe haven, moreso for some investors even than the dollar?

It is worth asking, as markets on Monday displayed many signs of risk-off tendencies, given the international rumpus, including US threats, triggered by North Korea's latest nuclear weapons test.

Shares closed broadly lower, with London's FTSE 100 index, for instance, ending down 0.4%, following losses of 1.0% in Tokyo, and 1.2% in Seoul.

Gold, the ultimate safe haven, added 0.8% to hit an 11-month high of 1,335 an ounce.

Yet the dollar, which historically might have been expected to benefit from risk-off moves, showed small losses, of 0.1% against a basket of currencies, and shed even more, 0.4% against the euro itself.

The euro's strengthening comes ahead of a monetary policy meeting at the European Central Bank, at which the prospect of a cut to eurozone stimulus spending is expected to be discussed.

'Ever-increasing harvest figures'

For grain markets, a strong euro might be expected to renew pressure on euro-denominated, Paris futures in the likes of wheat, which has also, of course, been sunk by the huge harvest in nearby Russia.

As CRM AgriCommodities noted, "the Russian wheat crop is now pegged at around 85m tonnes by some private analysts, and it will likely continue to cap any strong rally in price before the arrival of the winter", when the risk of cold raises a particular question mark over Russian logistics.

Analysts at a major European commodities said house said that "the reports from Russia continue to support ever-increasing harvest figures.

"The initial wheat crop expectation was 72m tonnes and this is now in the low 80s million tonnes, with some analysts putting their neck out for a mid-to-high 80s end figure."

Russian prices

Still, one fillip for Paris wheat prices on Monday were signs of stabilisation in Russian values, with Ikar pegging 12.5% protein wheat for export at $179.50 a tonne, down a modest $0.50 a tonne week on week.

The relative strength, in the face of a huge harvest, was attributed to a strengthened rouble, which on Friday touched 57.35 to $1, its strongest since mid-June, helped by improved oil prices.

Whatever, firm Russian price signal diminished export competitiveness, and improve hopes for shipments from the likes of France, the EU's top wheat grower and exporter.

Best-traded Paris wheat for December closed unchanged at E160.50 a tonne, with many other contracts gaining, including the spot September lot, which added 1.3% to E156.00 a tonne.

London wheat for November edged 0.2% higher to £140.25 a tonne, undermined a touch by decent UK harvest progress.

"British farmers continue to make the most of the current dry conditions with the domestic wheat and spring barley harvest estimated to be more than 80% and 55% complete, respectively - ahead of the five-year averages," said CRM AgriCommodities.

'Sharp downward revisions'

But back in Paris, rapeseed failed to follow suit, easing 0.3% to E369.00 a tonne for November delivery.

And this despite too a downgrade of 260,000 tonnes, to 21.65m tonnes, in Strategie Grains' estimate of the European Union crop, the world's biggest.

"In the EU, rapeseed harvest results show higher-than-expected yields in France, but sharp downward revisions in Germany," Strategie Grains said, with persistent summer rains a problem for many German crops.

Still, on the downside for prices is market concern that the EU may be poised to relax markedly tariffs on imports of biodiesel from Argentina (so displacing some of Europe's own production of the biofuel, which is made from vegetable oils.

Investors are "awaiting the decision from Brussels on the biodiesel import case", said Agritel.

'As short as they ever get'

Among soft commodities, London-traded white sugar for October rebounded 0.7% to $374.10 a tonne, helped by ideas that a tumble in sugar complex prices in the last session may have gone too far.

A drop in raw sugar futures on Friday took prices "back below parity with hydrous ethanol in Brazil to give the market some fundamental comfort", said Tobin Gorey at Commonwealth Bank of Australia.

(Sugar prices falling below so-called ethanol parity gives mills financial incentive to turn cane into biofuel rather than sweetener, so curtailing sugar output and tending to support prices.)

Furthermore, while latest hedge fund position data showed them cutting their net short in raw sugar futures and options in the week to last Tuesday from the record high the week before, the decline was not much, at some 8,000 lots.

"The market's positions as at last Tuesday suggests investors remain about as short sugar futures as they ever get," Mr Gorey said, implying that further short betting may be hard to come by.

Robusta not so robust

However, London robusta coffee futures for November fell by 1.8% to $2,021 a tonne, a two-month closing low.

This despite a seasonal decline in Vietnamese exports, the world's biggest for robusta, which the country's General Statistics Office said last week looked poised to come in at 95,000 tonnes for last month, down from 101,000 tonnes in July.

The weakness in values on Monday could herald more sales to come, according to Sucden Financial technical analysis.

"To confirm the outlook of lower prices in the medium term, contracts need to take out $2,060 a tonne," the group said earlier, noting that of late "trend support" around this level, or a touch below, had proved difficult for futures to break below.

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