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Evening markets: grains, oilseeds drop as charts add to woes

he bears who got their claws into grain and oilseed markets in the last session managed something of a mauling in this one.

Raw materials overall managed something of a mixed day, standing little changed overall in late deals, although many soft commodities showed gains.

And shares were little changed as well, with London stocks closing down a fraction of a percent, and Wall Street shares adding 0.1% in late deals.

But in Chicago, Kansas and Paris grain and oilseed markets there was no question about the chosen direction, and it was downward.

'Nearly universal bearish tone'

The root cause was considered the US Department of Agriculture's latest Wasde crop report, on Friday, which raised estimates for US soybean stocks significantly more than investors had expected, and was more generous on US corn and global wheat inventories too.

Broker Doane cautioned investors to expect something of a delayed reaction to the data, saying it would "percolate pressure on the grains as more and more hedgers and traders not programmed to react instantly to such reports read analysis and advice updates from advisors".

And these advisors "had a nearly universal bearish tone" in their analyses.

Soybeans were the epicentre of bearish sentiment, with US Commodities noting that "soybeans are having a hangover from Friday's negative Wasde report.

"The critically-tight soybean balance table has quickly faded."

Goldman forecasts

Goldman Sachs upheld some hopes for bulls by, while lowering its price forecasts for all three crops, keeping them well above the futures curve.

Soybeans, for instance, the bank saw as returning to $16.50 a bushel on a three-month horizon, some $2.10 a bushel above where Chicago's March futures contract started the day, and further from where it ended up.

But bears held far more cards on Monday, not just through the Wasde, but a plunge in Chinese soy complex futures overnight, touching a raw nerve over demand, given the country's negative soybean crushing margins.

"Chinese soybean values were off sharply overnight with soymeal and soyoil trading down the limit as the market plays catch up and Chinese crush margins remain very weak," Benson Quinn Commodities said.

The falls, including a drop in Dalian soyoil to the lowest level since 2010, wiped out the boost from data showing Chinese imports of 4.03m tonnes of soybeans last month, while buy-ins of vegetable oils hit 900,000 tonnes, a three year high.

 'Prospects are looking up'

But also, there was improved South American weather for soybean sowings for investors to factor in.

OK, conditions were not perfect, with Argentina getting some rain at the weekend, and more forecast next weekend too, to slow machinery struggling through mud.

Still, "Argentine growing conditions have improved in November turning warmer and drier" overall, Gail Martell at Martell Crop Projections said, noting that the outlook is "mostly dry with warming temperatures favouring spring planting.

"Modest rains are expected in western Buenos Aires and La Pampa,  but not heavy amounts."

And in Brazil, "soybean prospects are looking up in the Brazil tropics", that is the central and major soybean growing areas, such as Mato Grosso.

"November has been favourably wet in the Brazil tropics, kicking off widespread soybean planting in Mato Grosso and Goias," Ms Martell said.

In fact, consultancy Safras said 54% of Brazilian soy was planted, above the average of 51%.

'Record low stochastic levels'

If the hedge funds - which have already sold down their net long position in soybeans to an eight-month low - needed any further excuse to keep maintaining that course, technical factors contributed.

Chicago's best-traded January contract, which managed in the last session to hold just above its 200-day moving average, moved most definitely below it closing beneath it for the first time in five months, and for only the third time since February.

Indeed, at its day low of $14.02 a bushel, the weakest since late June, it was down more than 20% from its record high in September, crossing the boundary for a bear market.

The lot close a little higher, but not much, ending down 3.2% at $14.51 a bushel, and not, yet anyway, fulfilling a more positive technical pointer.

"The soybean complex is reaching record low stochastic levels, which is a measurement of an oversold market," Darrell Holaday at Country Futures said with an hour or so of live trading to go.

"This will likely prompt some late day short covering or first thing tomorrow."

Rain on the Plains

Grains were hardly in demand either, including wheat, which had been something of a darling of Chicago, amid weather setbacks to crops in harvest in Argentina and Australia, and to some countries such as the US undertaking seedings.

In fact, the fears over US dryness eased, with US Commodities noting that "rains occurred in the eastern plains over the weekend which is aiding the wheat crop".

Mr Holaday said: "Weekend rain was a little broader than anticipated, and that has added to the downside momentum."

Still, he added that "it is important to realize that is was certainly not a general rain for the hard red winter wheat area.

"It was a good rain for the eastern one-third of the area, but the driest areas were missed."

Gartman sells

And, as an extra threat, the US crop faces a frost threat.

Still, technical factors again gave funds little reason to think twice, with Chicago's December lot falling down through its 10-, 20-, 50- and 100-day moving averages on the same day, to finish down 3.2% at $8.57 a bushel.

Kansas hard red winter wheat for December closed down 3.4% at $8.90 a bushel, also attracting negative comment from commodity watcher Dennis Gartman, who said that he is selling July futures after only buying the grain on November 9.

"No sooner had we bought it but the market 'reversed' to the downside," he said.

And in Paris, the January wheat lot closed down 2.5% at E270.00 a tonne, while London's May lot ended down 2.6% at E221.00 a tonne.

'Key level'

Meanwhile, corn for December dropped 2.8% to $7.18 a bushel.

Besides pressure from its fellow crops, corn suffered a technical negative too when it fell below its October low of some $7.32 a bushel.

"The key level to keep an eye on in December corn is the $7.32 level, which would likely trigger additional fund selling if breached," Benson Quinn said early in the day.

At Allendale, Paul Georgy said: "Technical support is $7.32 a bushel in December corn. It is likely sell orders are building below that level."

After the event, Country Futures' Mr Holaday said: "When December corn traded through the $7.31 area, there was a lot of technical selling that developed and it moved into the liquidation mode very quickly."

Buyers to act?

Among soft commodities, the rain which is benefiting soybeans in Brazil was viewed as less positive for cane harvesting, and helped raw sugar close up 1.6% at 19.36 cents a pound.

Furthermore, "there is chat around the trade that perhaps the market is falling to levels where decent destination off take will evolve," Sucden Financial said.

And the steep sell-off by speculators of their net long position in raw sugar helped, by limiting fears of an overhang of liquidation to come, and potentially creating scope for buying.

Record net short

This was even more the case in arabica coffee, in which speculators' were noted to have rattled up a record net short position, raising questions indeed about where the next short contracts are going to come from.

"New York's reaction today to the [data] was of no great surprise and the early rally was pretty much spec lead," Sucden said.

"The highest-on-record short position was certainly the catalyst to slow the downwards momentum that we have seen of late."

Arabica coffee for March delivery closed up 1.7% at 158.20 cents a pound.

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