Could grains and oilseeds find the muscle on Thursday to pull out of their nosedive?

Much was hanging technically on a positive finish.

US Commodities, for instance, said that Kansas's March wheat contract "is at support and has an outside day trade occurring. It needs a positive close today to provide a floor".

In fact, "all the markets except soyoil are now deeply oversold", with the vegetable oil gaining support from this week's extension of US tax credits on biodiesel, a move which some say could raise US soyoil use by some 200m-300m pounds in 2012-13.

"Oats is the most severely oversold and should be the first to find support," the broker said, adding that "the market is due for a dead cat bounce".

'The trend is your friend'

But just as it appeared that grains, at least, would crawl to a positive close, a late wave of selling knocked them back again.

"Bottom line – chart action is giving little reason to bottom pick," said Richard Feltes at RJ O'Brien.

Benson Quinn Commodities said: "Corn, wheat and soybean charts broke some major support levels yesterday and as the saying goes 'the trend is your friend', suggesting markets will continue lower without any bullish news."

And bullish news was hard to find.

'The game continues'

That was particularly the case for soybeans themselves, which suffered the latest in a series of cancellations by Chinese importers of orders of US supplies – 315,000 tonnes.

All may not be quite as straightforward as it appears, with Linn Group suggesting last time the Chinese ditched purchases that these may represent call-offs of putative, rather than sealed, deals.

At Country Futures, Darrell Holaday said: "The game continues. Purchases one day, and cancellations the next."

'Production potential improved'

But, coupled with reports of improved weather in Argentina and Brazil, the wash-outs conjured up an credible story of Chinese buyers ditching non-urgent orders from the US, likely made at high prices, to await the onset of South America supplies.

Indeed, RJ O'Brien, pegging the Brazilian soybean crop at 82m tonnes, 1m tonnes higher than the official US Department of Agriculture estimate, said that "soy and corn crop production potential improved over the last two weeks".

And the USDA's Brasilia attaché raised his estimate to 83m tonnes, citing "good" crop condition in most areas, even if some parts, noticeably in the north east, are unduly dry.

"Brazil is expecting good rains the next 10 days - overall the crop conditions are favourable in Brazil," US Commodities said.

"Argentina is expected to be hot and dry next week. This is welcome after the recent wet conditions."

Prices fall

Benson Quinn Commodities put it so: "Favourable weather for large crops in South American pressures corn and soybeans, while the US wheat market trends lower on ample US stocks and quiet export demand."

Soybeans for March dropped 0.4% to $13.86 ½ a bushel, one of the lowest closes of the last six months, but at least enough to outperform soyoil this time, which dropped 0.7% to 50.70 cents a pound for March delivery, as the tax credit boost wore off.  

Corn itself for March closed down 0.2% at $6.89 ¼ a bushel, a fresh six-month closing low, dragged back into negative territory by the late selling wave.

Pressure from expectations for next week's USDA Wasde report did little to help.

"Trade is looking for the USDA to cut its 2012-13 US corn exports by 100m-150m bushels in the wake of ongoing hefty South American corn exports," RJ O'Brien's Richard Feltes said.

Weather threat

At least wheat did manage a positive close, just, by 0.25 cents to $8.11 ¼ a bushel in Kansas for March delivery, and by the same to $7.55 ½ a bushel in Chicago, helped by lingering fears for US drought.

"Weather models are pointing to much colder temperatures in the US Plains 10-15 days out," Country Futures' Darrell Holaday said.

"This will be something to watch if the warmer temperatures ahead of the severe cold results in the snow melting and removing the snow cover."

Indeed, David Pearson, a National Weather Service hydrologist in Nebraska, said that the level of snows needed to break drought was "an amount nobody would wish on their worst enemy.

"It would take a record-breaking snowfall for the season to get us back on track."

Commerzbank said that "we do not see any fundamental justification for the sharp 12% fall in the price of wheat since early December, especially as there are downside risks for the harvests in both Australia and the US".

Egyptian stockpile

Such thoughts helped counteract some negative news, in a Qatari purchase of 40,000 tonnes of Indian wheat at tender, lifting the idea of India as an exporter of the grain at a time when the US is meant to be

Furthermore, the Gasc state grain authority in Egypt, the top wheat importer, said that it had enough supplies to last until June, and cut to 3.8m tonnes, from 4.8m tonnes, an estimate for imports this fiscal year.

"I can get an additional 5.5 months' supply from the local market if I get 4m tonnes. This would mean I'm covered for 11 months," Gasc head Nomani Nomani said.

In Europe, a major grain exporter to Egypt, Paris wheat too managed only slim gains in the circumstances, up 0.1% at E246.50 a tonne.

London wheat for May closed down 0.7% at £208.50 a tonne.

US monetary tightening?

Another factor preying on many, dollar-denominated, commodities was the strength of the currency, after minutes from a Federal Reserve monetary policy meeting showed members were growing cautious over asset purchases as a way of supporting the economy, and could this year shelve an $85bn monthly bond-buying programme.

Fed officials "thought that it would probably be appropriate to slow or stop purchases well before the end of 2013", the minutes said.

With currency debasement looking less of a risk, the dollar soared 0.8%, making dollar-denominated exports less affordable.

The CRB commodities index lost 0.7%, and many New York soft commodities much more.

'Selling continues to be relentless'

Raw sugar for March, for instance, dropped 3.0% to 19.10 cents a pound, as ideas of easy supplies regained centre stage.

"Producer selling continues to be relentless, and the depth of market shows offers of over 9,500 lots up to the main resistance level of 20 cents," Nick Penney at Sucden Financial said.

"These offers are what is being shown on the market and doesn't account for hidden 'iceberg' orders."

Meanwhile, there is "little sign of offtake by end users who took advantage of the drop before the Christmas period to buy and whose ideas look to have dropped to 18.50 cents a pound and below".

'Downtrend has more to say'

And New York arabica coffee for March ended down 1.9% at 146.50 cents a pound, reversing some of the last session's hefty gains.

"There are quite a few reports going around at the moment regarding how low the price of coffee is so it would not be hard to believe that 152-155 cents a pound, maybe even 160.00 cents a pound, could be a good target for the upside," Sucden said.

"But despite this we are still seeing a daily increase in the certified stocks, and lots of coffee at origin.

"As a result this downtrend may still have a little more to say in the early part of this year."