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Evening markets: grain prices drop, as soybeans scoop buyers

Maybe the index funds made a difference after all.

Their rebalancing the annual exercise in which they bring portfolio weightings back to mandated levels, meaning buying 2013 losers, such as grains seemed to have made little difference during its week in action, which ended on Tuesday.

Wheat prices tumbled some 4% during the week, despite rebalancing meant to mean substantial purchases of Chicago contracts.

And while corn futures rose, there was nothing that could not be explained by US Department of Agriculture revisions to estimates for domestic supplies of the grain.

Prices drop

Still, with the index funds gone, wheat got itself into even worse shape.

Chicago's March contract tumbled 2.0% to settle at $5.67 a bushel the lowest finish for a spot lot since July 2010, and helped by the sale of an estimated 4,000 contracts by funds.

Kansas City-traded hard red winter wheat matched it, in dropping 2.0% to $6.19 a bushel, finishing at the day low, and the weakest finish in eight months.

Paris bulls may think themselves lucky in suffering only a 1.0% drop to E193.00 a tonne for March delivery (although not as lucky as London investors, who saw prices nudge 0.2% higher to £156.00 a tonne, albeit in low volumes).

Reasons for hope

The extent of the decline was, frankly, a little puzzling.

There had, earlier, been some reason for hope, with Benson Quinn Commodities saying that "wheat markets are leveraging a more supportive technical structure, oversold conditions and better global demand for wheat to attempt a correction".

(An upward correction, that is.)

"There is talk that Brazil continues to shop for US hard red winter wheat, which is in line with attempts by Brazilian millers to get the government to agree to additional North American supplies being imported at a lower tariff," the broker added.

And the US Department of Agriculture itself gave reassurance on US wheat exports.

Indian record

Prices were, traders said, weighed in part by a forecast by India's farm minister, Sharad Pawar, that the country will harvest a record 100m-tonne harvest this year, although it has to be said it is not the first time such a total has been mentioned.

Another reason given was Ukraine's announcement of a 63m-tonne grains harvest, largely wheat, although this too has been previously announced.

Sure, Commodity Weather Group downplayed the risk to US winter wheat seedlings from the latest cold spell.

But that was hardly unopposed.

'Winterkill threats will increase'

MDA said that snow cover, important for protecting winter wheat seedlings against frost, "remains limited in central and southern portions of the Midwest", soft red winter wheat country.

"Snow cover is expected to remain limited in west central areas, and winterkill threats will increase in west central Indiana and central Illinois, mainly next weekend."

In the Plains, hard red winter wheat country, "the continued drier pattern will allow moisture shortages to build further", which is not such an issue from a development perspective with the crop dormant, but could be if it means no snow blanket in low temperatures.

At Country Futures, Darrell Holaday explained wheat's unpopularity so: "There simply is very little buying interest in the corn and wheat, and the trade attitude is to buy soybeans and sell anything else.

"That is exactly what is going on."

Ethanol data

Certainly, corn ended lower, down 1.3% at $4.25 a bushel in Chicago for March delivery, back below its 50-day and 20-day moving averages, if remaining above its 10-day line.

Mr Holaday said: "The corn market was not helped by the [ethanol] data," which showed output falling last week by 51,000 barrels a day, the largest fall on record although that was actually down to logistical factors caused by cold rather than any weakness in producers' desire to churn out the biofuel.

Also ranged against corn was the continued talk of fresh rejections by China of cargoes of US distillers' grains, a high-protein feed ingredient made as a byproduct of ethanol manufacture, which has got caught up in the furore over contamination with a GMO corn variety.

That said, as Allendale noted, "we have no confirmation" of the rejections, and cash bids for distillers' grains in US Gulf of Mexico ports "were steady late yesterday".

The same could not be said for the cash market for corn itself, which has been attracting producer selling.

US Commodities said: "Cash corn basis was a couple of cents lower. Clinton and Cedar Rapids corn basis bids have weakened 15-18 cents a bushel this week".

'Cutting harvest estimates'

Meanwhile, the grain still struggled to gain any traction from concerns over heat and dryness in Argentina, even though it is striking in the sensitive pollination period in some areas.

"Dryness in the southern growing areas of Argentina has many cutting harvest estimates between 18.0m-25.0m tonnes," compared with a USDA estimate of 25m tonnes, CHS Hedging said.

US Commodities, estimating that 40% of Argentine corn is pollinating, said that "the hot and dry conditions continue to stress the crop and questions persist over the potential for a double crop in the southern areas.

"February outlook for Argentina currently has hot weather persisting. If the warm pattern were to continue, this could harm yield potential for Argentine corn during pollination stage."

'Finding support'

Soybeans, however, did gain some support from the Argentine weather.

"The hot and dry conditions continue to stress the crop," CHS said.

"Soybeans are finding support from weather concerns in South America and Chinese demand."

In fact, the USDA, besides offering some reassurance over US soybean exports to China, also unveiled the sale of 106,000 tonnes on this route, albeit for 2014-15.

And US demand for soybeans was shown resilient too, with the National Oilseed Processors Association pegging the crush last month at 165.4m bushels, at the top end of market expectations, and a record.

Products strong

Soybeans for March ended up 0.8% at $13.84 a bushel, a fifth successive winning session.

It helped that the products gained too. Soymeal gained 1.0% to $434.50 a short ton for March delivery, helped by a strong performance by futures on China's Dalian exchange overnight.

Furthermore, soymeal prices "are being supported on ideas that US soybean supplies for crush will be constricted the second half of the season", said Anne Frick at Jefferies Bache.

Soyoil for March gained 0.6% to 37.99 cents a pound, despite the NOPA data showing US stocks of the vegetable oil at 1.68bn pounds, up from 1.486bn pounds the month before and above market expectations for a 1.555bn-pound number.

Still, rival vegetable oil palm oil helped by rising overnight in Kuala Lumpur, by 1.2% to 2,524 ringgit a tonne, its first winning session of 2014.

Three-year low

Among soft commodities, raw sugar's decline accelerated, as New York's March contract closed down 1.7% at 15.23 cents a pound, the weakest close for a spot contract in three and a half years.

The decline was attributed to technical factors, as futures tumbled below chart support areas at 15.34 cents a pound and 15.28 cents a pound, as well as continued pressure from data on Tuesday showing a strong finish to the cane crush in Brazil's Centre South.

Cocoa was mixed, as strong European cocoa grind data felt a drag from weak Malaysian volumes.

London cocoa for March added 0.2% to £1,751 a tonne, but New York's March contract eased 0.1% to $2,748 a tonne.

And New York arabica coffee dropped 1.7% to 117.20 cents a pound for March, amid waning ideas of support from lower expectations for Brazil's harvest.

Morning markets: Argentine heat helps soy. But grains ease
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