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Evening markets: dry US outlook sends soybeans back over $11

Have investors overdone the selling in grains and oilseeds?

To be sure, there are few thinking futures are away to the races.

But there is an idea that prices have done enough for now on the downside to price in expectations of large world production, with Australia & New Zealand Bank the latest to caution against uber-bearishness.

And soybean futures did managed to extend their recovery quite convincingly, closing up 2.2% at $11.07 a bushel for November delivery.

'Expecting good demand'

That was the first close starting with an $11 in two weeks, and took the contract back above its 20-day moving average for the first time this month.

It was fostered, in fundamentals, both by supply and demand ideas.

On demand, the US announced yet another sale to China, of 486,000 tonnes for 2014-15, although 66,000 tonnes are of optional origin, meaning they could end up being bought from, say, Brazil.

Still, with weekly actual exports firm too, at 112,345 tonnes last week, up from 97,160 tonnes the week before, it was definitely advantage bulls on this score.

"Analysts are expecting good demand for US soybeans after the large break in prices," Fintec Group noted.

'The driving force'

On supply, the forecast for dryness in parts of the Midwest changed a little, turning wetter in in the middle of the week for Nebraska and Kansas but at the expense of Iowa and Illinois, so offering no net gain.

"The dryness in the western production areas is really the driving force in the market today," Darrell Holaday at Country Futures said.

Citigroup's Sterling Smith said that "there is some slight nervousness about dry weather being seen across the western Corn Belt, and the forecasts are leaning drier over the next 10 days.

"If this dryness and warmer bias continue on into the middle of August, this will be an issue."

Soybeans, unlike corn, have yet in earnest to get through their vulnerable developmental phase, pod-setting, making dry weather a particular concern.

And at a time when hedge funds already have a large net short in the oilseed, the biggest since 2006, making the market vulnerable to profit-taking.

'Demand has seen an uptick'

Corn itself rose 1.3% to $3.76 a bushel for December delivery, ending above its 10-day moving average for the first time this month, helped also by the dry weather.

"There is some dryness beginning to creep into the south western production areas," Mr Smith said, adding that "demand has seen an uptick as prices have slumped nearly 30% since posting highs in early May".

That said, export sales, at 805,365 tonnes, were OK but not fantastic, down from 941,977 tonnes the previous week.

Wheat drops

It was wheat which let bulls down, falling 0.6% to $5.34 a bushel in Chicago for September delivery.

Sure, there was much comment about worries in eastern Australia, from the likes of Allendale, which said that "Australian wheat producers are becoming concerned about dryness and the development of El Nino.

"Producers in New South Wales and Queensland are already dealing with sporadic showers and low subsoil moisture."

However, conditions in the south have been near-optimal, allowing National Australia Bank to forecast a harvest above that of the official Abares crop bureau.

Furthermore, US exports were soft last week, at 395,963 tonnes, down from 527,633 tonnes the week before.

Signally, wheat in Paris dropped 0.8% to E178.25 a tonne despite lingering concerns over the French crop, although drier weather in the country is expected to improve harvest progress this week.

'A little less bearish'

Among soft commodities, cotton hitched a ride with the row crops, adding 0.8% to 65.88 cents a pound in New York for December delivery, recovering from a contract closing low in the last session.

In fact, "cotton is attempting to end a string of 12 consecutive weekly declines, its worst week to week swoon in 55 years", Mr Smith noted.

And it may get some help from the extent of selling that hedge funds have already managed, besides a more promising shape to the future curve, according to John Robinson, head of cotton marketing at Texas A&M University.

"After maintaining a months long inversion of old crop over new crop futures, the December continues to trade below the March, May, and July 2015 contracts," he said. 

"While the forward spreads don't cover the cost of storing cotton, at least it is a move back towards normal economic relationships. 

"And that move suggests things might be a little less bearish for the future."

'Flowers could be aborted'

Arabica coffee added 1.1% to 181.10 cents a pound in New York for September delivery, amid continued concerns over the impact of rains on drought-hit Brazilian plantations, unfortunately, not at the ideal, or usual, time.

"The longed-for rainfall in Brazil has now become so extensive that harvesting keeps being disrupted," Commerzbank said.

"What is more, there are fears that it could result in the pollination for the 2015 crop beginning too early."

At Price Futures, Jack Scoville noted rain in Brazil over the weekend, which will encourage further early flowering, ahead of the 2015 harvest.

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