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Evening markets: China u-turns sink soybeans. Wheat gains

OK, it was a holiday market, with the Christmas break now less than a week away. But trading wasn't that quiet.

"I would say there is slightly higher volume than a normal holiday market, which happens when you get fundamental news," Don Roose, president of broker US Commodities, said.

And the big fundamental news, at least in grain and oilseed markets, was of the cancellation by soybean importers of 420,000 tonnes of orders from the US.

Most, 300,000 tonnes, were ditched by China, with the rest down to "unknown".

And while the US also announced 110,000 tonnes of soybean export orders, the net loss of trade hardly went unnoticed in Chicago.

'Highly dependent on demand'

"Looking back that is why the market could not hold the gains yesterday, but we got the news this morning," Darrell Holaday at Country Futures said, as soybeans for January headed for a close down 2.0% at $14.66 a bushel, their biggest decline in more than a month.

The better-traded March contract closed down 1.9% at $14.60 a bushel.

"Don't underestimate the importance of today's break on reported soy cancellations," Richard Feltes at RJ O'Brien said.

"Against the backdrop of favourable South American weather, the soy market rally is highly dependent on strong demand."

'Stable to improving'

Indeed, as an extra pressure on prices, ideas over Brazil's soybean harvest increased with a benign turn in the weather, raising the thoughts of it eclipsing by a reasonable distance the 80.6m-tonne US crop to become the world's biggest in 2012-13.

RJ O'Brien termed Brazilian row crop yield potential as "stable to improving", pegging the soybean harvest at 82m-83m tonnes, ahead of the USDA's 81.0m-tonne estimate.

While crop scout Michael Cordonnier kept his forecast at 80m tonnes, he acknowledged that the estimate "could move higher".

Benson Quinn Commodities said that "the weather in Brazil looks favourable besides some squawking about a drier pattern developing in northern regions.

"Based on what we are seeing right now, we wouldn't be surprised to see the [USDA] Brazilian soybean production estimates increased in the future from the current 81m tonnes, but it's too early to do so right now."

'Serious delays in planting'

OK, the weather is not proving so helpful to Argentine growers who, having been tested by drought last season, and seeing 2012-13 prospects marred by torrential rains.

"Pessimism in Argentina's soybean outlook is due to rain that has caused serious delays in planting, while also leading to unfavourable soggy seed beds," Gail Martell at Martell Crop Projections said.

While farmers can plant until early January, such late plantings"are short-cycle soybeans that produce a reduced yield".

But Benson Quinn said that "the trade has wisely moved the issue of wet conditions in Argentina to the back burner.

"They have been in worse shape and still produced ample bushels."

Furthermore, as an extra boost to bears, Chicago's January and March lots fell below their 50-day moving averages, much watched technical points.

Trading range

Funds sold an estimated 11,000 Chicago soybean lots.

That was far more than the 3,000 sold in corn, which demonstrated a more typical holiday feel.

What little news there was included the negative that China had cleared the first two containers of corn the country has imported from Argentina, after earlier reports that the shipments contained traces of banned genetically modified varities.

Corn closed down 0.5% at $7.20 a bushel for March, right at the bottom of the range it has trodden since July.

"The fear is that it follows wheat and falls out of the bottom of its trading range," Mr Roose said.

'Storm prospects increased'

In fact, wheat itself fared relatively well this time, rising 0.4% to $8.11 a bushel for Chicago's March lot, which earlier threatened to fall below $8 a bushel for the first time since July.

One tentative support was from Argentina, which said it was to limit shipments in January and February because of a rain-hit harvest - although the government said it was sticking by a quota target of 6m tonnes of the gran in 2012-13.

Market rumour has said the quota will be cut to 4.5m tonnes.

However, while investors appeared to be in short-covering mode, and indeed funds bought an estimated 3,000 lots of the grain, optimism was tempered by an increase in ideas of moisture set for areas of the US Plains where dryness has set back seedlings.

"The winter storm prospects for next week increased in the overnight runs and the mid-day GFS model," Country Futures' Darrell Holaday said.

We still see the bias in the precipitation totals in the eastern Midwest and the east. But there is definitely more promise today for the Plains than there was in yesterday's model runs."

Record Brazil sugar output?

Among soft commodities, investors also seemed to be in selling mood, in contrast with their position on some other risk assets, with Wall Street shares up 0.8% in late deals.

New York raw sugar for March closed down 1.4% at 19.13 cents a pound, as support from the covering of short positions waned.

"The surpluses on the sugar market continue to weigh on prices," Commerzbank analysts said.

"Brazil's main growing region for sugar cane, Centre South, has already reported sugar production in excess of the 32.7m tons originally forecast for the entire 2012-13 season

"The market is already talking about another record figure of nearly 37m tonnes of sugar from the Centre South. In this situation, the sugar price is unlikely to make any great leaps upwards."

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