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Evening markets: grains jump on end-of-week short covering

Grains got the better of soybeans heading into late deals as investors took profits on short positions ahead of the weekend which, with weather and harvest results key, could yet turn up surprises.

With the memory of Tuesday's spurt in prices (albeit a short-lived jump for corn and wheat futures) still fresh in investors' minds, they trod cautiously on sales in the last trading session of the week, allowing some gains in prices.

"Grains are consolidating after trading to fresh lows for the month yesterday," broker Benson Quinn Commodities said.

Informa estimates

Not that the day didn't offer fresh reason to sell, especially in corn, for which new crop US export sales came in below expectations, at 328,000 tonnes, spurring ideas that US supplies are too expensive to compete with those from Brazil and Ukraine to many destinations.

And Informa Economics touched a raw nerve too in trimming its forecast for the US corn yield by just 1.4 bushels per acre to 157.2 bushels per acre, leaving its estimate well above the US Department of Agriculture forecast of 154.4 bushels per acre.

Analysts - who on average are expecting a figure of 153.9 bushels per acre, according to a Bloomberg survey - had expected Informa, one of the more closely watched crop commentators, to cut its estimate by at least 2 bushels per acre.

The raw nerve was that caused by US corn harvest results which, so far, are coming in strong.

'Impressive yield results'

Benson Quinn said: "The corn market is now starting to trade off of harvest yield results," with weather now a non-issue, without a surprise and imminent frost, or extensive harvest rains, neither of which look in the offing.

"Harvest is starting to advance northward for corn with better-than-expected yield reports from Indiana, Illinois and Kansas popping up."

US Commodities said: "Yield results on corn remain impressive," if cautioning that the area harvested so far "was the early plantings and believed to be the best corn"

Whatever, the fresh supplies are undermining cash markets, with Paul Georgy at Allendale reporting that "corn basis is tumbling as elevators and processors have enough to carry them over until harvest gets into full swing".

Still, Chicago corn for December stood 1.4% higher at $4.67 a bushel with a little under an hour's trading to go (12:20 local time, 18:20 UK time).

Brazil buys

Wheat, on which speculators also have a sizeable net short position, gained too, although with extra fundamental cause, given strong weekly US export sales of 747,400 tonnes, including 79,000 tonnes for 2014-15 delivery.

Investors had expected sales of, at least, 600,000 tonnes.

The figure included a further 187,000 tonnes chalked down to Brazil, whose needs have been whetted by frost damage to the crop in the southern state of Parana.

"Brazilian grain-growers in Parana appear to have suffered a second freeze event in the last week of August," Australian trader Pentag Nidera said, noting "concerns that Parana's wheat output could fall below the 2m-tonne mark, compared to earlier estimates of 2.7m tonnes".

The sales took Brazil's total orders of US wheat alone for 2013-14, including exports already undertaken, above 2m tonnes.

Protein chatter

Furthermore, wheat had some support from date showing afall in Canada's inventories of the grain to a five-year low, which at least countered a little bit of the talk of a good spring wheat harvest, and of protein levels turning out better than in the US crop.

US Wheat Associates, which promotes US grain exports, confirmed the drop in protein in US hard red spring wheat, to 13.9%, below the average of 14.6% last year, although saying that the crop had improved on the measure of bushel weight.

Still, that left the US hard red spring wheat crop with protein not that much higher than hard red winter wheat, which has come in at 13.1% so far, "well above average".

Chicago soft red winter wheat for December was 1.9% higher at $6.52 a bushel, while hard red winter wheat for December traded up 1.7% at $7.00 a bushel.

The Minneapolis December hard red spring wheat lot rebounded 1.3% from a contract closing low to stand at $7.20 a bushel.

European prices

These rises helped European wheat prices too, with the Paris November contract closing up 0.7% at E188.75 a tonne.

While officials at FranceAgriMer pegged the French soft wheat harvest at 36.7m, above a farm ministry estimate last month of 36.1m tonnes, private commentators have already flagged a 37m-tonne crop.

Furthermore, while the latest grain tender by Egypt's Gasc grain authority ended with a further sale purchase from Romania, of 60,000 tonnes at $252.00 a tonne plus shipping, French grain, at $258.50 a tonne, was at least cheaper than some offers of Russian supplies.

France actually exported 829,000 tonnes of wheat in July, up 7% year on year, French customs data showed.

In London, wheat for November, which has faced pressure from a stronger pound and chat of the need to compete on export markets, stoked by improved ideas of this year's harvest, closed up 0.4% at £155.05 a tonne.

Sluggish soy

Back in Chicago, soybeans lagged, up 0.1% at $13.68 a bushel, despite strong US export sales data here too, of 849,000 tonnes, including 5,000 tonnes of old crop, at the upper end of market forecasts.

Indeed, this brings "total commitments for 2013-14 to a record 20.5m tonnes, up 2.4m tonnes from last year and including 14.6m tonnes confirmed to China, as well as a large part of the 4.2m tonnes down to 'unknown'," Richard Feltes at RJ O'Brien said.

However, China provided some more negative news as well, being reckoned to have bought nine cargoes of Argentine soybeans this week, thanks to lower prices there.

And this when its soybean imports may be about to fade for a while, thanks to the impact of sales from state reserves in tempering the need to turn abroad.

Informa data

Also weighing on prices was Informa's tiny downgrade in its US soybean yield forecast, by 0.3 bushels per acre to 42.7 bushels per acre, above market consensus of about 41 bushels per acre.

Informa trimmed its US soybean production forecast to 3.239bn bushels from 3.266bn bushels, if saying that it was using USDA area estimates which looked likely to be downgraded.

And FC Stone hiked its forecast for Brazil's next harvest, due early in 2014, to a record 87.5m tonnes, stoking ideas that the US will face tough export competition later in 2013-14.

'Firm physical values'

Among soft commodities, the end-of-week profit taking encouraged a small decline in cocoa futures from their highest level in nigh-on a year.

Cocoa for December eased 0.1% to $2.564 a tonne in New York.

And raw sugar for October was 1.9% higher at 16.83 cents a pound in late deals, continuing to gain support from Czarnikow's downgrade to its forecast for the 2013-14 world surplus, amid ideas that demand may have been whetted by low prices more than many commentators have appreciated.

"Reports of demand staying strong and firm physical values may be adding strength to futures in the short term," Sucden Financial said.

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