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Evening markets: coffee soars, corn rises, wheat struggles

Corn futures made a bright start to the week, far outperforming other grains, although whether this headway will last…

Chicago corn futures for December closed up 1.3% at $3.68 ¼ a bushel, going a sixth successive session without setting a new contract low, and nearly retaking its 10-day moving average line.

However, this appeared down more to the approach of key data, with the US Department of Agriculture's monthly Wasde report due on Tuesday, rather than any fundamental support.

US corn exports last week, at 905,137 tonnes, were OK, but below the 1.14m tonnes the week before, USDA data on Monday showed.

And on the supply side, there appears no major threat to ideas of record US production this year.

The outlook "leans negative" to prices, Richard Feltes at broker RJ O'Brien said, noting forecasts of a "continuation of cool temperatures this week followed by warming next week that will push crops to maturity".

'Adjustment day'

But how big will the US crop be?

While the USDA currently foresees a record yield of 165.3 bushels per acre, thanks to good growing conditions the figure is widely expected to be raised in the Wasde, to 170.1 bushels per acre, on a consensus market forecast.

However, will it be raised to far? And even if it is, have investors already factored in a value so high?

"Possibly the best way to describe today in the grain and oilseed markets is adjustment day," Darrell Holaday at Country Futures said.

"The corn market is making adjustments ahead of the USDA numbers tomorrow," and actually the "primary adjustment is the unwinding of November soybean/December corn spreads".

Soybeans vs corn

Going long on soybeans and short on corn has been a popular bet, and a profitable one in recent months, as the November soybean: December corn ratio has climbed to well above 2.9:1.

But, with US soybeans now going through their critical month of August without a major weather test, after corn apparently sailed through its July pollination without too many hiccups, there are ideas that the ratio should be closing.

And the prospect of the Wasde provided a catalyst for some profit-taking.

Certainly, November soybeans ended down 1.1% at $10.73 ¼ a bushel, back below 10-day and 20-day moving averages.

US weekly soybean exports were reasonable, at 98,910 tonnes, more than double those the week before, taking the total for 2013-14 to 43.16m tonnes.

Still, the USDA has forecast full-season exports at 44.09m tonnes, with only three weeks left to run.

For 2014-15, the USDA announced the sale of 168,000 tonnes of the oilseed to China, extending a recent pick-up in orders, but one which needs to be maintained to signal exports next year meeting strong expectations.

Besides, elsewhere in the oilseeds complex, palm oil sent a downbeat signal in tumbling to a year low, helping depress rival vegetable oil soyoil by 1.8% to 35.21 cents a pound in Chicago for December delivery – a contract closing low.

'Quality concerns will continue'

For wheat, the poor start gave way to a downbeat close, down 0.5% at $5.46 ½ a bushel in Chicago for September delivery, although the contract did manage decent gains at some points during the day.

At one point, the contract touched $5.56 ½ a bushel, challenging its 40-day moving average.

Sure, the news on Europe's wheat crop was hardly promising, with the remnant of Hurricane Bertha sweeping in to give extra threats to the harvesting, and the quality of the crop.

"Rain totals of more than 1.00 inch occurred in a few locations causing the greatest set back in field operations," World Weather said.

And the outlook is none too promising either with rainfall this week to "continue frequent across much of central and north [Europe] resulting in delays to small grain harvesting", the weather service said.

"Some crop quality concerns will continue, although the situation will not be quite as wet as that of last month."

'Technical structure failed'

However, how well are US exporters taking advantage of the setback to the EU, which had been expected to be the world's top wheat exporter in 2014-15?

US exports last week were, at nearly 527,000 tonnes, well above the 384,421 tonnes the week before, but compared less favourably with the year-ago figure of 664,145 tonnes.

Besides, chart-wise, "after a solid correction, the technical structure of the wheat markets failed last week and has yet to find support," Benson Quinn Commodities said.

"It appears a test of the prior lows is in order."

Nor is there quite the same pressure on hedge funds to cover short positions, with some already closed, and Russian-West tensions on the wane, as Moscow pulls back troops from the border with Ukraine.

Paris wheat itself for November closed down 1.2% at E172.25 a tonne.

Firmer softs

Buyers were more evident among soft commodities, with New York cotton for December adding 0.3% to 64.40 cents a pound, as Societe Generale raised some questions over the health of the Texas crop, and questioned the wisdom of further short positions in a fibre already trading near contract lows.

And raw sugar for October added 0.6% to 16.24 cents a pound, recovering from earlier losses, amid some debate over how supportive is a turn in hedge funds to net short in the sweetener, after a hefty five-week sell down.

Is the selling spent, or is more to come?

Central America dryness

Arabica coffee did best, soaring 4.6% to 189.15 cents a pound in New York for September delivery, retaking its 10-day, 75-day and 100-day moving averages, as talk of dryness spread from Brazil to other major producing countries, in what looks like it could become an emerging story.

"The weather is dry again in Brazil and much of Latin America," Jack Scoville at Price Futures said.

Besides Central America, where plantations are still recovering from a rust outbreak, there is some talk of a lack of rain in Colombia, the second-ranked arabica producing country, and in east Africa too.

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