Evening markets: grains, cotton hold gains. But sugar slips

Grains made a strong start to the week, helped by the return of some weather premium to prices, amid some less-than-ideal rainfall forecasts, and evidence of the extent of the selldown that hedge funds have already undertaken.

Soybeans fared particularly well, closing up 2.0% at $10.77 ½ a bushel in Chicago for November delivery.

But corn wasn't far behind, ending up 1.9% at $3.69 ½ a bushel for December.

And Chicago wheat for September closed 1.8% higher at $5.44 a bushel,

Weather outlook

The rise came against a backdrop of worries about a US weather outlook which remains a little drier than desirable if, it has to be restated, more of an issue about just how much corn and soybean crops will set records by.

(Indeed, FCStone reminded of crop potential by pegging the US corn yield at 172.4 bushels per acre, easily a record, if a figure well out there already, in line with Doane and Linn Group estimates from last week. And Rabobank forecast prices falling to $3.50 a bushel.)

However, "the reality is that both weather models [European and GFS] are not moving moisture as far east as they were late last week," Darrell Holaday at Country Futures.

Still, they are putting a lot of moisture in the western Corn Belt through the weekend.

"If there is any area that may be shorted by the systems this week, it would be eastern Illinois, Indiana and Ohio."

'Need for early August rains'

"Areas needing rain over next week include northern Indiana, south and north Illinois, Minnesota, Dakotas and Nebraska," said Richard Feltes at RJ O'Brien.

Indeed, RJ O'Brien research indicates a "need for early August rains across most areas".

It also shows a "dearth of farm selling, old crop and new".

That said, less positive for prices is that there is "ample time for soybeans to respond to August rains and expectations for an autumn storage crunch—especially in the western Midwest".

'Light bargain hunting'

Still, Citigroup's Sterling Smith flagged "light bargain hunting and continued worries over the weather" which had "allowed for a bounce off of support" in technical terms.

And buying was encouraged by the increasingly bearish tone of hedge fund positions, implying potentially less selling pressure ahead.

And corn also had some support from strong US export data for last week, at 1.14m tonnes, up from 817,000 tonnes the week before.

For soybeans, although weekly exports were soft, at 39,256 tonnes, down from 112,345 tonne the week before, the US Department of Agriculture did announce sales for 2014-15 of 102,000 tonnes to Taiwan and 110,000 tonnes to China.

'Enough of a short interest'

Wheat had less on the US export front to support it, with volumes last week at 351,503 tonnes, down from 396,453 tonnes the week before.

But the European harvest remains a concern, on quality terms, thanks to harvest-time rains, which encourage sprouting of ripe grains.

And there was a rise reported in prices of Russian wheat, renowned for its competitiveness, tallying with

Furthermore, there was the rise in hedge funds' net short in Chicago wheat futures and options to the second highest on record, raising the threat of a wave of short-covering.

"The Chicago wheat is the strongest item of the group as there is enough of a short interest to keep the rally propelled for the time being," Citigroup's Sterling Smith said.

Fire damage – or not

Among soft commodities, raw sugar for October ended down 3 cents at 16.32 cents a pound, undermined by confirmation by Brazilian sugar and ethanol giant Cosan that damage to its facilities at the terminal 19 in the port of Santos had not been so disastrous.

"The fire was confined to warehouse X, which had a capacity to store 18,000 tonnes, compared with 500,000 tonnes total capacity of Rumo at the Port of Santos," Cosan said, adding that the "amount stored at the moment of the fire was approximately 15,000 tonnes of sugar", not a huge amount.

Furthermore, as for fears of Santos suffering major disruption because of the fire, "terminal 16 is operational and has not been affected".

But cotton rallied in line with rival row crops cotton and soybeans, besides getting some support from the small extent of hedge fund longs, and an upgrade by the International Cotton Advisory Committee to its price forecast.

Cotton for December added 1.5% to 64.24 c, while the spot October contract soared 2.3% to 63.92 tonnes.

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