There was a little volatility around in agricultural commodity markets on Tuesday.

But it gave grains and oilseeds a miss, focusing instead on soft commodities – and with mixed results.

The default move was upwards, with appetite for risk on financial markets generally improving with better hopes for economic growth, and a well-received US earnings season.

Of the one-third of larger companies (ie of S&P500 constituents) to have reported results so far, 75% have reported profits ahead of Wall Street forecasts, according to Bloomberg.

Shares stood 0.5% higher on Wall Street in late deals, while the safe haven of the dollar eased 0.3%.

Cotton vs corn

The average commodity gained 0.6%, as measured by the CRB index, a rise which matched that in Brent crude, which crossed back above $114 a barrel.

And cotton did considerably better, adding 1.7% to 82.39 cents a pound in New York, for March delivery.

The fibre, as an industrial commodity rather than a food, tends to be more responsive to the broader market mood, and can show a close correlation with share prices.

But prices are being boosted too by ideas that it will be edged out significantly from US plantings by alternatives offering better returns.

Saxo Bank highlighted "expectations that some cotton farmers in the US, the world's largest exporter, will turn to more profitable crops such as corn and soybeans this coming season, thereby reducing the available supply".

Cocoa bounces

Cocoa was not far behind, gaining 1.6% to $2,195 a tonne in New York, for March delivery, as investors considered a drop in the last session to a seven-month low of $2,157 a tonne as overdone.

And New York arabica coffee for March managed a 0.5% gain to 149.80 cents a pound, underpinned by Societe Generale ideas that values have limited downside, even as the bank slashed its price forecasts.

Raw sugar bucked the upward trend, tumbling 1.9% to 18.38 cents a pound, amid a waning in the support it received from the last session from data showing a huge speculative net short position in the sweetener, so raising questions of how much unspent selling pressure there was.

'Still bearish in sugar'

"We are still bearish in sugar, particularly with the large output in Brazil, which not only results in a global excess but also lowers the production costs of sugar," Joyce Liu at Phillip Futures said.

"Sugar production is a high-fixed-costs industry and larger output will reduce idle capacity, lowering unit production cost.

"Hence, fundamentally, we see large potential downside to an extreme of 15 cents a pound by end of this year."

Furthermore, hopes of support from Australian flooding dissipated with further comments that negative implications were balanced by the longer-term positives of increased moisture reserves.

'In terrible condition'

In Chicago, however, price movement was limited, with corn for March travelling over all of 5 cents during the day, its smallest day range since April last year.

Wheat in fact moved most, and fared worst, in falling 0.3% to $7.77 a bushel for March delivery.

And this despite US Department of Agriculture officials revealing a further deterioration in the condition of crops in Kansas, the top wheat producing state, and Oklahoma.

"The Kansas wheat crop is in terrible condition," broker FCStone said.

Canada hopes

Furthermore, Russia was revealed as being about to cut its forecast for shipments of grain, which mainly means wheat, in 2012-13, as high prices prompted by small supplies cut it out of export markets, and even put sizeable imports on the cards.

Indeed, FCStone flagged "Russian wheat costs moving to record highs", so adding weight to "market chatter of Russian purchases of European Union wheat".

But that was not enough to protect wheat from profit-taking, especially after Canada forecast that its farmers would reap one of their biggest crops since the 1990s this year.

The crop will be driven to 28.5m tonnes by a switch in sowings away from canola and, especially, lentils, Canada's farm ministry said, forecasting a 31m-tonne rise in the global grain harvest too, despite US woes.

'Serious yield reductions'

Chicago corn itself closed all of 0.25 cents higher at $7.29 ½ a bushel, caught between the bearish idea of rationing taking place, following soft US export, cattle on feed and ethanol production data, and the bullish risk of deteriorating South American weather.

"The forecast is calling for rain relief, which could still rescue near-normal yields if it proves accurate," broker Doane said.

"But if it fails to meet expectations, as similar forecasts for rain have done in the past month, serious yield reductions are likely."

'No clue what's going to happen'

In fact, prospect of moisture for Argentina and southern Brazil, which need it, weakened with the latest run of the GFS weather model, which has been running wetter than its counterpart, the European model.

The midday GFS in the six-to-10 day outlook "has shifted the rains over south east Brazil back to the   north".

While it "now has new rains in the 11-15 day outlook", the model has had a habit of teasing with forecasts of rain ahead which fail to materialise.

"This in fact the third time the G FS model has done this in less than three weeks and when you see a model to something like this it's a warning sign that the model has no clue what's going to happen," WxRisk.com said. 

Rain delays

It was soybeans which felt a slightly bigger uplift, getting support from rain in other parts of Brazil, which is provoking thoughts of delays in getting export supplies to port.

 "Talk of rain hampering soybean harvest in Brazil has prompted ideas that ships waiting to load to China may have to wait too long," Darrell Holaday at Country Futures said.

"This could prompt additional purchases of US soybeans by China," the top importer, "for immediate delivery".

He added: "The problem with that is that it may be financially impractical as the price to buy US soybeans may wipe out the positive crush margin that the processors in China are experiencing right now."

Chicago soybeans for March added 0.3% to $14.51 ¾ a bushel.

Volatility ahead?

But can this lack of movement last?

There are various macroeconomic tests waiting to test market sentiment, with Wednesday bringing a Federal Reserve announcement after its latest policy meeting, and Friday a stack of economic data.

Furthermore, this week brings a month end, a period associated with fund selling, and month beginning, seen often as inspiring fund buying.

And markets will soon feel the gravitational pull of the next, February 8 USDA Wasde report on world crop supply and demand too.

"Trade guesstimates on what adjustments USDA will make in the February Wasde report are being gathered by wire services and once they start being reported," Doane said.

"Trader positioning ahead of this report will become a daily market factor as traders adjust positions based on whether they expect USDA's actual numbers to vary significantly from what is 'expected' - and which direction they expect the variance to be."