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Evening markets: cotton, wheat lead ag futures downward

Perhaps inspired by Luis Suarez, the Uruguayan footballer accused of biting an Italian rival at the World Cup, agricultural commodity bears chewed deeper into futures prices, prompting widespread losses.

The worst fall was actually seen in old crop July cotton, which plunged an astonishing 6.5% to 81.81 cents a pound, the weakest close for a spot contract in six months, although this was seen as largely down to technical factors.

With expiry approaching, and buyers scarce, investors still holding long positions are having to exit at whatever price they can get.

Citigroup's Sterling Smith noted that "open interest has imploded over the last two days in the July contract", a sign of investors closing up and getting out. 

The decline made the 1.5% drop to 76.49 cents a pound in the new crop December contract look positive benign.

US Department of Agriculture data overnight highlighted improvement in the condition of the US crop, helped by rains in Texas, the top cotton-producing state, moisture which has boded less well for winter wheat in potentially posing a quality threat.

'Tended drier'

Still, wheat futures suffered too, with the USDA crop progress data showing decent harvest progress last week in many states, including Oklahoma, where growers harvested more than one-quarter of their crop last week, besides in Texas itself.

In Kansas, the top wheat growing state, farmers remain 10 points behind, having 24% of their crop in the barn as of Sunday.

But there was enough there to spark ideas of plenty of supplies around for buyers to choose from, and potentially a growing willingness among producers to sell, now that much of their crop is known and counted.

Besides the forecast for the south western Plains "has tended drier", boding well for harvest progress.


Harvest is also ramping up in other northern hemisphere countries, adding to harvest pressure on prices.

And there is not that much idea around of what will stop them going down, in the US especially, where prices appear expensive compared with those in many other geographies.

"The export wire continues to be active, however little of the demand is pointed at the US," Mr Smith said.

Benson Quinn Commodities also questioned how positive for prices is the talk of vomitoxin, a harmful fungal residue, in soft red winter wheat.

"The quality of the soft red winter wheat crop is in question and not bullish," the broker said, with that depending on the quality standards for delivery against Chicago futures, or whether some broader reputational issue is involved.

'Slide back into oversold conditions'

Technically, "it feels like the wheat markets are going to slide back into oversold conditions before finding support", the broker added.

In fact, Chicago's best traded September soft red winter wheat futures contract closed down 1.4% at $5.80 a bushel, its lowest finish in getting on for five months.

For Kansas City hard red winter wheat futures, the September lot ended down 1.3% at $7.03 a bushel, having curried technical disfavour by falling in the last session below its 200-day moving average.

Paris soft milling wheat futures dropped 1.1% to E186.50 a tonne a nine-month low for a spot contract, weighed by the looming prospect of a huge European Union harvest, estimated by Coceral at the second highest on record.

Weather outlook

Corn actually did better, in ending down a relatively small 0.3% at $4.43 a bushel for July delivery, and by 0.6% at $4.40 a bushel for the new crop December lot.

Although the USDA did, in a report overnight, show damage to US corn in some states last week, the overall crop remains in good health.

"Weekly crop conditions were down a couple of points, but were in line with trade expectations," CHS Hedging said.

And the weather outlook looks benign.

"A drier weather profile is expected for areas that dealt with heavy rains and some flooding, while the rest of the Corn Belt is expected to see periodic showers, normal temperatures and ample sunshine," Benson Quinn Commodities said.

Technical factors

Soybeans lost 0.8% to $14.13 a bushel for July delivery, and the same to $12.24 a bushel for the new crop November futures contract, despite the concern over tight stocks underlined by Rabobank on Monday.

But, besides improved weather hopes, the oilseed faced a host of technical challenges too.

Darrell Holaday at Country Futures noted "significant technical discussion of the November soybean chart", which could be on the way to showing a head and shoulders pattern, a negative price signal.

"A close below $12.02 a bushel would be very negative and would signal a move down to $11.20 a bushel," he said, although the contract at least avoided that fate.

What it could not sidestep, however, was a drop below a clutch of moving averages.

"Overnight trade saw the Nov contract fail at the 50- and 20-day moving averages, and a negative chart pattern is forming in this contract," Benson Quinn Commodities said.

The July contract in this session dropped back below its 10-day and 100-day moving averages.

Softer softs

Back in New York, arabica coffee for September dropped 0.6% to 176.25 cents a pound for September delivery, awaiting more news on the extent of the damage to Brazil's crop from the early-year drought.

Raw sugar for October edged 0.1% lower to 18.69 cents a pound, with doubts here too about just how much damage has been done to Brazilian cane from dry weather, and with rain now not necessarily likely to prove a help, as Marex Spectron highlighted.

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