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Evening markets: export news helps grains gain on soybeans

Corn and wheat futures returned to the front foot on, helped by export news, but with a whiff of profit-taking in the gains, coming ahead of a long weekend for the US.

Soybeans might have been expected to do well too, given strong export data.

US export sales of the oilseed hit 1.23m tonnes last week, old crop and new combined, well ahead of market expectations of at best 1.05m tonnes, and signally included 678,200 tonnes of old-crop purchases by China.

(Concerns that China is about to cancel a stack of US soybean orders and switch to Brazilian supplies, now the harvest there is ramping up, have been overhanging the market.)

Still, actual exports included 1.09m tonnes of China, cutting those out of the potential cancellation roster.

And the US Department of Agriculture, through its daily alerts system, revealed a further 465,500 tonnes sold to China too, albeit most for next season.

Argentine outlook

However, soybean futures for March, having spent much of the day in positive ground, closed down 0.3% at $13.15 a bushel, if remaining comfortably above the contract's major moving averges.

This fall came despite some other supportive news too, with China's Commerce ministry forecasting soybean imports of 4.61m tonnes of soybeans this month, larger than previously suggested.

And the Buenos Aires grains exchange cut by 120,000 hectares, to 20.35m hectares, its forecast for Argentine plantings of the oilseed, a result of the ongoing hot and dry spell.

In fact, for Argentina, the "operational GFS [weather model] is hotter over the next five days in central, northern and eastern Argentina and the GFS is pretty dry just like the European model," weather service said.

Rains ahead?

But is it dry enough?

"Both models continue to show a pretty good thunderstorm cluster moving into much of Buenos Aires on January 19-20 and dropping about 1.5 inches of rain," said.

And more widespread rains are expected later next week.

CHS Hedging said: "The latest weather update looking ahead is now confident in rains next week for the dry South American areas concerning both Argentina and Brazil.

"The new shown confidence for rain in Argentina specifically may be what dropped beans from the high at midday."

Certainly, investors may have been unwilling to take much of a risk with a long weekend looming Monday brings the US Martin Luther King holiday meaning three days without being able to trade, at a time when Argentine weather forecasts are sensitive.

Taking profits may have been a more attractive option, implying selling soybeans, in which speculators have a large net long holding, and indeed funds sold an estimated 4,000 lots on the day.

For corn and wheat, position closing means purchases, given that hedge funds have large net short positions in both grains indeed the market has been marked by heavy long soybean-short corn/wheat spreading.

And corn and wheat indeed closed comfortably higher.

Corn exports

Investors did have some fundamental reasons for buying into the grains, with US corn export sales strong, at 821,000 tonnes of old crop, above expectations of at best 550,000 tonnes.

"Corn came in well above expectations," CHS said.

And that may not be such a surprise, given that its export competitiveness is looking OK bar all but Ukraine among major exporters.

"US Gulf corn is priced at about $196 per tonne while Argentina is $205, Brazil is $192 and Ukraine is $169 per tonne," US Commodities said.

'Will not cover costs'

Indeed, the US export figure would have been higher were it not for 170,000 tonnes in cancellations by China, which is not such a surprise given the rejections of a stack of US cargoes over claims of contamination with a GMO variety unapproved by Beijing.

Meanwhile, the Federal Reserve chipped in with an intriguing insight into the dynamic of Midwest corn planting this spring.

"Current prices for corn will not cover expected costs for 2014 production, whereas soybean prices would," the central bank said in its so-called Beige Book economic round-up.

"This may lead to increased soybean planting in the spring," and an implied drop in corn area, a potentially bullish input.

Mixed export news

For wheat the bullish case did not appear quite so strong, with export sales, at 402,000 tonnes old crop and new combined, coming in at the bottom end of the range of market expectations.

OK, US wheat won again at a tender by Egypt's Gasc grain authority, taking purchases to 120,000 tonnes in less than a week, and highlighted the competitiveness of US supplies in the process.

But US supplies have hardly swept the board, in terms of winning only a small part of the 890,000 tonnes that Gasc has purchased in the last two weeks.

There is also talk of Brazil buying a further two cargoes of US hard red winter wheat.

Downbeat outlook

Still, FCStone flagged more bearish outlook for European wheat prices at least, foreseeing EU stocks ending 2013-14 higher than many investors have expected, as livestock feeders switch some demand to corn.

Certainly, while Chicago wheat managed healthy gains, adding 0.9% to $5.72 a bushel for March delivery, Paris wheat struggled, ending down 0.3% at E196.50 a tonne for March delivery, the lowest close for a spot contract in three months.

London wheat for March ended down 0.3% at £155.55 a tonne, having set a contract low of £153.90 a tonne earlier.

These declines came despite strong European weekly exports, at 810,000 tonnes, taking the cumulative total this season to 15.9m tonnes, from 10.4m tonnes a year before.

'So many are bearish'

Among soft commodities, New York cotton extended gains, adding 1.7% to 86.19 cents a pound for March delivery, helped by solid US export sales data and a growing confidence that China is not about to dump a stack of its inventories on the market.

And raw sugar for March recovered from a three-year low set earlier to end at 15.45 cents a pound, a gain of 1.4%.

Not that all are convinced that this rally can last.

"The only thing we see on the horizon to support prices is the fact that so many are bearish, and therefore, we assume, already short," said Nick Penney, senior trader at Sucden Financial.

"It may be that a large net short accompanied by technically oversold indicators will spur a corrective rally and this may prompt some end users who have had things their own way lately to step up their cover."

Morning markets: soybean prices gain, lifted by firm demand
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