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AM markets: looming data stabilise futures - except in corn

There has been further talk about the question asked 24 hours ago – how low can corn prices go – and it makes better reading for buyers than producers.

After Chicago's December corn contract in the last session bust down through $4.00 a bushel for the first time, "the next level of support is $3.75 a bushel", CHS Hedging said.

At Chicago broker RJ O'Brien, Richard Feltes said that there is "more talk of December corn hitting $3.75 a bushel in coming weeks, as 214 US corn yield expectations inch steadily higher".

At Benson Quinn Commodities, Brian Henry said: "With the help of favourable weather and various funds needing to liquidate length due to being underwater, the next downside objective in December corn is the $3.85 a bushel level."

Gap debate

Still, that may not be the end of it.

Mr Henry had pondered over whether a gap (an important technical pointer) that emerged in the December corn chart on Monday was an "exhaustion" gap, meaning the rally is nearly over, or "measuring" gap, meaning it marks only the half-way mark or so, erred towards the latter.

The fall below $4 a bushel "hints at the idea that Monday's gap is in fact a measuring gap," he said.

That would "bring the idea of corn trading to the $3.50-3.55 a bushel range into play".

Yield question

The big fundamental pressure on prices is the prospect of a huge US harvest of the grain, and of soybeans too, thanks to near-ideal conditions in the Midwest.

These are prompting talk of the US Department of Agriculture taking the unusual step, in its Wasde crop report on Friday, of raising its estimate for the US corn yield early in the growing season, with upgrades, when they occur, usually a later-season phenomenon.

While the USA is currently estimating the US corn yield at 165.3 bushels per acre, "many in the trade are gearing up for a yield closer to 170 bushels per acre at the end of the day," Mr Henry said.

'Iron clad case for selling'

But that is not the only pressure on prices, of course.

Mr Feltes added that "charts are negative, US farmer undersold on new crop, end users are going hand to mouth, weather is near ideal, foreign crop estimates (except for India) are increasing, while the strong undertow from short old crop US soybean stocks is fading.

"Collectively, the convergence of these factors represents an iron clad case for follow-up selling in coming weeks."

Even if Chinese soybean imports for 2014-15 beat expectation, and Indian soymeal exports drop, "the US and South America will have ample supply to meet the added demand".

Prices fall

In fact, there are a few crop worries around apart from those in India, with such as over dryness in eastern Australia, and harvest time rains in parts of Europe.

But worries do no concern corn areas (rains at this time of year are helpful to European corn), and Chicago's December contract dropped 0.4% to $3.96 ½ a bushel as of 09:40 UK time (03:40 Chicago time), although reluctant yet to trade beneath the last session's contract low.

Old crop September corn was 0.5% lower at $3.89 ½ a bushel.

Palm support

Still, one factor in crops' favour is the imminence of the Wasde.

The run-up to reports can prompt position closing as investors take profits, avoiding the uncertainty of the report, and taking profits this time means closing short positions.

"The market should quiet with the July Wasde rapidly approaching," Citigroup's Sterling Smith said.

There were some less dismal signs in other markets, including oilseeds, which received a boost from data showing Malaysia palm oil stocks fell 10% last month to 1.66m tonnes, well below the figure of 1.8m tonnes that investors had expected.

Futures in palm oil itself, which notched up a nine-month low of 2,349 ringgit a tonne ahead of the data, recovered to stand at 2,385 ringgit a tonne in Kuala Lumpur, a rise of 0.5%.

Second crop factor

In Chicago, rival vegetable oil soyoil stood 0.7% higher at 37.40 cents a pound, recovering a little of the ground lost in the last session, when its decline was fuelled by talk that China is considering a sale in October of rapeseed oil from state reserves.

Soyoil's rise helped soybeans themselves hold firm at $12.46 ½ a bushel for August delivery, while the new crop November lot added 0.2% to $11.05 ½ a bushel.

While the November soybean contract remains unusually high compared with December corn, at a ratio of 2.79:1, it is being helped by the prospect that many US second crop sowings – planted on land vacated by the winter wheat harvest – have yet to go in.

Low prices may give growers second thoughts, giving some leeway for US soybean production shortfalls below the most optimistic estimates.

Chicago vs Kansas City

Wheat itself was flat in Chicago at $5.51 ¼ a bushel for September delivery, with Egypt, the top importer of the grain, doing little to help by saying it has six months' wheat in store.

The country's strong start to 2014-15 for wheat imports may tail off…

Kansas City hard red winter wheat continued its recent trend of underperformance, down 0.2% at $6.52 a bushel for September delivery, amid improved results from the latest stretch of the US harvest.

Indeed, the discount of Chicago wheat to Kansas City has now returned almost to $1 a bushel.

"This does merit close monitoring as we should be reaching a value level," Mr Smith said.

At Benson Quinn Commodities, Brian Henry said that "I wouldn't be surprised to see wheat markets catch a modest bid on short covering, but don't see a reason for a sustained rally".

'Until the glut dissipates…'

Among soft commodities, early indications were for a weak opening for cocoa, after European grind data for the April-to-June quarter came in at 307,938 tonnes, down 0.7% year on year, compared with expectations for at least flat volumes.

Raw sugar fell 0.67% to 17.32 cents a pound in New York for October delivery.

"Physical demand continues to be slow when prices are the low end of the range and slows to a trickle when the market moves to the high end of the range," Mr Smith said.

"There are weather issues that can help the market move higher," such as India's weak monsoon.

"However, until the glut dissipates movement will be choppy."

Cotton for December dropped a further 0.4% to 69.40 cents a pound, after dropping below the psychologically important 70 cents a pound mark in the last session for the first time in two years.

Prices are being undermined by the prospect of a bearish Wasde report, after rain refreshed drought-hit Texas, the top US cotton-growing state.

Evening markets: fund liquidation drags corn prices below \$4
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