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Evening markets: grains fall again, but end above day lows

Grain futures extended their declines on Tuesday, but the falls were nowhere near as severe as in the last session, with follow-up liquidation failing to arrive in quite the quantity many had expected.

Maybe it was because of the date, with month beginnings often associated with cash inflows into the market.

Maybe it was down to the weak progress of India's monsoon, a threat to a range of crops, and which is gaining increasing comment among Western investors.

India received 3.6 inches of rain last month, 43% below the average for the second half of the 20th century, and the lowest since 2009, according to the India Meteorological Department.

'Well behind normal'

And more recently, "rains during the past 24 hours were mainly confined to north east and far south India and are well behind normal for this date," Telvent DTN said in its latest update.

"Through the next 10 days the models keep the rains just east and south of key soybean areas of West Madhya Pradesh and key groundnut areas of Gujarat."

At broker RJ O'Brien, Richard Feltes flagged that "India monsoon rains are again delayed until late next week – further delaying oilseed plantings and shortening the growing season".

Weak monsoons are often associated with an El Nino weather pattern which the Australian Bureau of Meteorology restated has a "70% chance of developing in 2014.

"Climate models surveyed by the bureau continue to indicate that El Niño is likely to develop by [southern hemisphere] spring 2014."

Hard wheat softens

Whatever, grain futures ended down, but comfortably above intraday lows, with Kansas City hard red winter wheat futures actually faring worst in dropping 1.5% to $6.89 ½ a bushel for September delivery, the first close for the contract below $7 a bushel in four months.

That decline followed some mixed data overnight on US winter wheat, with rains improving a little the condition of hard red winter wheat in Kansas, the top producing state, but slowing the harvest.

Still, what hard red winter wheat also has is a relatively large hedge fund long position to liquidate, if Monday's bearish US Department of Agriculture reports on US grain stocks and sowings have indeed put them in the mindset to sell down.

As of a week ago, hedge funds had a net long of 24,949 contracts in Kansas City hard red winter wheat futures and options - compared with a net short of more than 40,000 contracts in Chicago soft red winter wheat.

Tender results

Chicago wheat for September indeed fared better in falling 0.9% to $5.72 ½ a bushel, a five-month closing low, although above the intraday low of $5.69 ¼ a bushel

The USDA crop progress data showed quality deterioration in some soft red winter wheat states, including Illinois, chiming with market talk, besides some concerns over rain damage to crops in parts of Europe too.

And the results of Gasc's latest auction showed US wheat getting closer into contention in terms of world competitiveness, coming within $7 a tonne of winning offers, excluding freight, compared with a premium of nearly $12 a tonne at the previous auction, two weeks ago.

There were some deliveries against the expiring July contact, with 84 wheat deliveries announced in Chicago, 113 in Minnesota and 54 against Kansas City wheat, a situation which investors will monitor.

'Isn't much for bulls to grasp'

Rival grain corn closed down 0.6% at $4.22 ¾ a bushel for new crop December futures, the best-traded lot, a contract closing low.

But, again, that was above a day low of $4.17 a bushel, and better than might have been expected given the larger-than-expected US stocks announced on Monday, benign weather conditions, and an improved crop rating in official data overnight.

"There isn't much for bulls to grasp against backdrop of fully recharged Midwest soils, the absence of any sustained heat and near-normal growing degree day accumulation that minimises risk from potential early autumn frosts," Richard Feltes at RJ O'Brien said.

Corn for August edged 0.2% lower to $4.30 a bushel, above an intraday low of $4.24 a bushel.

'Textbook head and shoulders'

Soybeans underperformed a touch on new crop, ending down 0.8% at $11.47 ½ a bushel for the new crop November lot, although above a day low of $11.32 a bushel, the weakest in four months.

The November soybean:December corn ratio ended at 2.71:1, still high, but well below levels above 2.8:1 reached last week.

Besides the setback of a huge US soybean acreage figure revealed by the USDA on Monday, the contract faced a chart negative too.

"A textbook head-and-shoulders topping pattern in November soybeans was confirmed on yesterday's break," CHS Hedging said.

China auction

Still, on the more positive side, Mr Feltes flagged "some chatter overnight that the USDA", in its huge estimate for US soybean plantings, "has not allotted for any water damage in soybeans".

Furthermore, the Chinese soybean auction from state reserves went better this week, with a reported 106,739 tonnes of soybeans sold, equivalent to 30% of the 355,668 tonnes on offer, and potentially signalling firm demand.

That compared with 44,741 tonnes sold last week, 12.6% of the volume on offer.

Back in Chicago, old crop August soybeans eased 0.2% to $13.27 ¾ a bushel.

'Production uncertainty'

In New York, December cotton, also handed some price pressure by Monday's USDA data in terms of a raised estimate for US acres, followed the pattern of a lower close, down 0.1% at 73.40 cents a pound, but one well above the intraday low of 72.20 cents a pound, a two-year low.

Raw sugar for October closed down 1.2% at 17.80 cents a pound, managing to finish, by the slimmest margin, above its 200-day moving average.

There are still some bullish factors, with Rabobank noting that "persistent dry conditions across cane producing countries and the likely late onset of El Nino are still driving production uncertainty".

Besides the India monsoon worries, Rabobank highlighted the dryness in Brazil's Centre South, for which the bank said its forecasts of a cane harvest of 570m tonnes, and sugar output of 32.8m tonnes, were at risk of a downgrade.

"Similarly, Thai cane-growing regions have also experienced dry growing conditions recently."

However, the huge net long that hedge funds have built up is raising questions about unfulfilled buying pressure.

'Better yields than anticipated'

Arabica coffee also took a step or two backwards, ending down 2.4% at 170.95 cents a pound for September, with Rabobank delivering a little downbeat sentiment.

The "apparent impact" of drought on Brazil's crop had become "less pronounced than anticipated" as harvest progressed, the bank said, if stocking by forecasts for futures to average 175 cents a pound in the current quarter.

Robusta for September ended flat at $2,016 a tonne, with poor export data from Sumatra, Indonesia's main growing area, at 6,898 tonnes – a two-year low and down 41% year on year, offsetting the negative pull from arabica.

Sumatran exports so far this year are, at 56,000 tonnes, down 40% year on year.

Rabobank termed "supportive" the outlook for robusta coffee prices.

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