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Evening markets: China news weakens soy. But softs sparkle

Many commodities found succour in Chinese data showing a stronger-than-expected rise in both exports and imports last month, boosting the country's trade surplus to elevated levels.

The CRB commodities index added 0.5% to close at its highest in nearly five months, and share markets were generally pretty solid too, although Wall Street's Dow Jones Industrial Average stood 0.2% lower in late deals.

However, grains and oilseeds were not among them.

Chinese u-turn

Indeed, these markets were overshadowed by some negative news on Chinese imports confirmation, at long last, of cancellations of orders of US soybeans, now the Brazilian harvest is throwing off supplies at lower prices.

The cancellations amounted to 272,000 tonnes, although there was an accompanying purchase of 240,000 tonnes for 2014-15, making it looks like the order had been rolled over.

The talk has been of Chinese buyers ditching far higher volumes, with 10-12 cargoes, more like 500,000 tonnes, said by the rumour mill to have been axed.

But there is counter speculation too that merchants are not letting importers off the hook so easily over the US purchases.

Waited too long?

"There has been talk in the market that Chinese buyers may have waited too long to cancel contracts or shift to South American origins on nearby contract, as US exporters have already booked freight for loading at US ports," said Anne Frick at broker Jefferies Bache.

But although there "appears to be some difficulty and hesitation on shifting to South American origins, it will eventually take place.

"Switching to South America is an annual process, with the discount in South American values versus US making the decision easy for exporters."

Indeed, Brazil has begun shipping new crop soybeans "ahead of normal, though end users will be cautious before shifting all of their origination to South America", given the history of logistical problems and strikes.

'Earlier and larger cancellations'

Richard Feltes, at RJ O'Brien, termed Brazil's February soybean exports as "stellar" so far, indicating that volumes may hit 3.0m tonnes, up from 2.3m tonnes in February last year.

"Better-than-expected Brazil soy exports may trigger earlier and larger Chinese cancellation of US soybeans - stay tuned."

And as an extra setback, the weather turned against bulls too.

In Brazil, this meant rains too soothe dryness concerns.

"Rains in southern and north western areas will improve moisture for safrinha corn and late soybean growth," if slowing harvest of main crop corn and earlier harvested soybeans, weather service MDA said.

US warms up

In the US, weather improvement meant a retreat in the freezing temperatures which have hampered logistics, encouraging buyers to pay up for short-term supplies of grains as well as soybeans.

"In the upper Midwest, things appear to be returning to normal with temperatures this morning in many areas above zero for the first time in many weeks, while the 10-day forecast is advertising temperatures above freezing," Benson Quinn Commodities said.

Still, the news was not all bearish, with CHS Hedging noting that "demand for soybeans remains strong at the processor".

Soybeans for March fell in Chicago, but by a relatively modest 0.8% to $13.23 a bushel.

Oats plunge

The improved US weather was a negative for many grains too, of which prices have also had some support from logistical problems.

Oats, which hit record highs last week, has been chief among these, and indeed the March contract plunged 4.3% to $4.18 a bushel, narrowly avoiding a limit-down close.

Corn suffered a less precipitate drop, by 0.4% to $4.40 a bushel for March delivery, surrendering its 10-day moving average, but keeping just ahead of the 100-day line.

"A break from extremely cold temperatures beginning today will improve corn movement in the country going forward," CHS said.

'Stiff resistance'

The Brazilian weather was also a factor, and a somewhat mixed one.

CHS noted that "the dry and warmer than normal weather has allowed for quick planting" of the safrinha corn crop, planted on land vacated by the soybean harvest, "but ground moisture is lacking for newly planted seeds".

And fund positioning is not as supportive as it was either.

"Funds are now sitting on a neutral-to-long position, having covered the majority of a rather substantial short position over the past two week," Benson Quinn Commodities said.

That is "offering stiff resistance" to upward movement "as funds are now longer a big buyer in the corn market".

'Begin to thaw'

Wheat fared even worse, with the warmer US weather not only reducing the freeze risk to winter wheat seedlings, but melting snow to replenish soil moisture.

"Plains snow cover should continue to melt through next week, as precipitation remains limited and temperatures warm," MDA said.

"The recent cold push is expected to end today and begin to thaw the southern states cover," CHS said, if noting that "more snow is forecasted for western Kansas at the end of the week".

Still, Kansas is dry, and could do with more soil moisture.

Price moves

In Chicago, wheat for March kissed its 50-day moving average for the first time in three months, only to lack the momentum to move through it, itself a poor technical sign.

The contract closed down 0.7% at $5.87 a bushel.

Paris wheat for March, which lagged Chicago during the recent rally, dawdled on the downside too, ending unchanged at E195.75 a tonne.

Although FranceAgriMer did raise its estimate for French wheat stocks at the close of 2013-14, by 170,000 tonne to 2.68m tonnes, some had expected a bigger increase, with the official crop bureau stopping short of cutting the forecast for exports outside the EU, as investors had prepared for.

London feed wheat for March dropped 1.2% to £151.70 a tonne, undermined by data showing surprisingly robust UK imports, of corn as well as wheat itself.

El Nino worries

Among soft commodities, cocoa hit two year highs on both sides of the Atlantic as talk of an El Nino in the offing gained momentum.

El Ninos have a habit of sapping world cocoa output, bringing excessive rain to Ecuador, a major producer, while tending to bring dry weather to West Africa, the most importing growing region.

"Forecast models increasingly lean toward the development of El Nino this summer and fall," said Mark Welch at Texas A&M University.

Cocoa for May closed up 0.7% at £1,867 a tonne in London, after touching £1,871 a tonne earlier, while its New York peer gained 1.3% to $2,971 a tonne, $3 below its own two-year top.

Coffee bubbles

And arabica coffee rose even more, by 2.7% to 141.15 cents a pound for New York's May contract, now the best traded.

The rise was attributed to ideas that the Brazilian dryness, while fading, had already wrought substantial damage.

Raw sugar for March gained too, by 2.3% to 15.81 cents a pound, despite India at last approving a generous export subsidy, of well over $50 a tonne.

The rise was attributed to "sell the rumour, buy the fact" thinking on a move which had been long-trailed.

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