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Evening markets: softs find strength. But grains, soy weaken

Soft commodities reversed their weakness of the last session to post solid gains, contrasting with a dourness of grain markets, which witnessed wheat lose its mojo.

Cotton was a notable outperformer among softs, soaring 2.6% to 65.81 cents a pound for December delivery, its best finish of the month.

The contract closed above its 20-day moving average for only the second time in three months, and comfortably so too.

'Mostly dry weather'

Indeed, the improvement was attributed in part to technical factors, with a convergence of 10-day and 20-day moving averages and chart trend lines suggesting some sort of break-out by futures, upward or lower.

It was helped to a positive close by prospects for less-than-ideal US weather for the cotton crop.

"The South East and Delta will get mostly dry weather," said Jack Scoville.

"Texas will see dry weather. Temperatures will average above normal."

It was also a support that hedge funds have their biggest net short in cotton futures and options since late 2012, raising the potential for short-covering and price gains.

Brazil factors

Raw sugar, in which hedge funds also have a notable net short position, managed gains too, rising 1.5% to 15.70 cents a pound for October delivery, if only having earlier set a fresh six-month low of 15.38 cents a pound.

The rebound was attributed largely to profit-taking on short positions, encouraged by forecasts of rain which will disrupt the Brazilian harvest, although, frankly, with the huge stocks built up in the country a slowdown would hardly spell a shortage of supplies.

Arabica coffee added 1.5% to 188.95 cents a pound, as Cepea expanded on the threat to the Brazil 2015 harvest from recent early blossoming which, in coinciding with harvesting, has meant many flowers lost in machinery.

This is less of any issue for robusta, for which Brazil's harvest is over, and indeed robusta for November added a more modest 1.1% to $1,969 a tonne.

'Basis on fire'

In Chicago, there was a little strength evident in the oilseeds sector, seeing continued support from the firm US cash market for soybeans.

"Soybean basis remains on fire as Indiana - processors were paying as high as $3.40 a bushel over November futures, and others raised bids $0.05-0.60." CHS Hedging said.

"Soymeal basis has also been strong and supportive for beans."

Near-term soybeans, for September, gained for a fifth successive session, if only by 0.1% to $11.02 a bushel.

Soymeal for September added 0.7% to $402.60 a short ton, the contract's highest close since June, and retaking its 100-day moving average.

At broker Jefferies, Anne Frick also saw some positive for soymeal from a US Department of Agriculture report overnight foreseeing a jump in Brazilian poultry output next year.

"This could boost Brazilian consumption of soybean meal," she said.

'Slowed dramatically'

However, further ahead contracts struggled, amid continuing expectations for a huge US crop, even if, on Macquarie estimates, sowings may have been overblown a little.

As the ProFarmer tour of the US Midwest hits the key producing states of Illinois and Iowa, "the theme of above average yield reports has continued," CHS Hedging said.

Furthermore, there are some concerns over a slowdown in orders from China, although Vietnam on Wednesday booked sales of 110,000 tonnes of soybeans to Vietnam for 2014-15.

"One of the factors that is bearish that is not talked about enough is that US export demand for all of the products has slowed dramatically in the last 2-3 weeks," Darrell Holaday at Country Futures said.

"The Chinese have been absent from the US soybean market and are rumoured to have everything bought through the end of the year and will only be interested in January/February delivery."

Resilient rapeseed

November soybeans ended down 1.5% at $10.38 a bushel, a fresh contract closing low.

December soymeal ended down 2.4% at $344.20 a short ton.

But elsewhere among oilseeds, Paris rapeseed for November managed to close 0.4% higher at E320.75 a tonne, gaining some help from a weaker euro, which slid 0.4% against the dollar to an 11-month low, so improving the competitiveness of eurozone exports.

On fundamentals, ADM Germany, formerly Toepfer International, did  increased its forecast for Germany's rapeseed crop forecast to 6.08m tonnes, but that represented only a modest upgrade, of 80,000 tonnes.

More important for the market could be data due on Thursday from Statistics Canada on crops in Canada, the top exporter of canola, the rapeseed variant.

The market foresees only a small upgrade, of 50,000 tonnes to 14.5m tonnes, in the StatsCan estimate, although Oil World this week pegged the crop at 14.7m tonnes.

'Quality an issue'

Among grains, wheat futures lost resilience as concerns waned over the idea of Ukraine limiting exports of milling supplies.

In fact, elsewhere in the former Soviet Union, official data underlined the strength of the Russian harvest, with 66.3m tonnes reaped from 46% of the planted area, at an average yield of 3.06 tonnes per hectare.

A year ago, 53.0m tonnes had been harvested, at an average yield of 2.56 tonnes per hectare.

More supportive for prices was an outlook of continued wetness for the northern US, a forecast which Benson Quinn Commodities said was "good for the corn and soybean crops, but not so for the spring wheat with vomitoxin and scab starting to show up in some of the early harvested wheat".

Vomitoxin is a toxic fungal residue, which can render wheat unfit even for feed, left over from fungal infections encouraged by damp conditions.

"With wheat quality an issue already in the EU and concern arising that there will be less milling wheat available out of Ukraine, quality problems in the US spring wheat crop may be somewhat supportive to an otherwise bearish global wheat market," Benson Quinn said.

Still, Chicago wheat for September closed down 1.2% at $5.39 a bushel, and Minneapolis spring wheat fared only marginally better, dropping 1.1% to $6.06 a bushel for September delivery.

Even Paris wheat for November ended lower, by 1.0% at E171.25 a tonne, despite the prop of a weak euro.

Ethanol stocks rise

Chicago corn fell too, by 1.3% to $3.67 a bushel for December, with soft ethanol data, and upbeat weather outlook, undermining the more supportive recent trend.

While US ethanol production rose 6,000 barrels a day to 937,000 barrels a day last week, stocks jumped 491,000 barrels to 18.25m barrels, up 10.7% year on year, raising concerns about the sustainability of the trend.

Sentiment was also undermined by positive comments from the ProFarmer crop tour.

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