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Evening markets: soy slips on Midwest rain. Grains do better

The benchmark soybean contract in Chicago had not closed below its 20-day moving average since early August.

But it did again on Monday.

The November contract, in tumbling 2.4% to $13.48 a bushel, ended below its 10-day moving average too.

The ray of hope, from a technical perspective, was that the contract remained reluctant to enter a chart gap stemming from August 26, when the Midwest dryness fears which have supported prices, ramped up, and closed just above it.

The refusal of the contract to close that chart gap has surprised many followers of chart patterns.

'Significant rains'

The weakness on Monday stemmed largely from the weather, with the Midwest receiving more precipitation than expected at the weekend, and with more in the forecast.

The latest run of the GFS weather model "continues to show significant rains for the eastern portions of the lower and central Plains and most of the western Corn Belt", said.

US Commodities said: "The weather pattern looks more normal. No frost or freeze is seen into early October."

And that bodes well for some recovery in soybean yields or at least diminishes the prospect of further deterioration to the dryness which plagued Midwest crops in the late summer.

'Harvest will expand'

Also negative to prices, on the demand side, monthly US soybean crush data for August from the National Oilseed Processors Association came in a bit light too, at 110.5m bushels, compared with the 110.7m bushels investors had forecast.

(It was actually the smallest figure for nearly two years, and down 11.4% year on year, although that is a reflection of the paucity of supplies after last year's harvest.)

Furthermore, there is harvest pressure to think of.

"The soybean harvest will expand through next week, which will add supply to the pipeline, while the trade expects producers to sell soybeans during harvest," Benson Quinn Commodities said, noting a matter of positioning too by hedge funds, which are already substantially net long in soybeans.

"The size of the fund net long position in soybeans could temper the attitude to buy soybeans at any cost."

'Dry conditions in Argentina'

And there's more including soft weekly US exports, of 3m bushels, last week, as measured by cargo inspections.

"That is well below the 27.1m bushels needed to stay on pace with the US Department of Agriculture's demand projection," CHS Hedging said.

Furthermore, there are growing concerns that dryness in South America might fuel even further growers' switch to soybeans, which can be later planted, over corn a factor highlighted by Societe Generale in recommending a short soybean, long corn bet.

"There was more talk over the weekend about dry conditions in Argentina which could cause producers to switch from corn to soybeans," Paul Georgy at broker Allendale said, if adding that "it seems a little early to get too excited about" such concerns.

'Supported by fear'

What bulls did have to cling on to was the continuing talk that the USDA will downgrade its yield forecast further in its October Wasde report, from the figure of 41.2 bushels per acre unveiled last week.

"Soybeans are supported by the fear of continued yield drops. The government in the September report had high pod weights which is a concern," US Commodities said.

Furthermore, there is a large unknown coming down the track on Tuesday, with the release of Farm Service Agency data on crop insurance claims, seen as an indication of how accurate current USDA estimates for sowings and harvested area are.

(Many investors believe the USDA has not accounted enough for the wet spring.)

"The consensus in the market is a 1-2m acre decrease in corn acres and 500,000 soybean acres" from current USDA estimates, Darrell Holaday at Country Futures said, although that could all change when the FSA data emerges early on Tuesday (US time).

'Reports of good yields'

For corn, that was some help too in limiting the decline in benchmark Chicago December futures to 0.4%, leaving them at $4.56 a bushel.

"The corn market is still dealing with the hangover of higher production and anecdotal reports of good yields with some better-than-expected yields also being found as the harvest expands," Benson Quinn Commodities said.

US Commodities said: "Corn yields thus far are impressive across the Corn Belt," adding that this was weighing on cash markets too.

"The basis levels are under severe pressure as the pipeline is being resupplied," while on export markets "world competition is keen".

In fact, US weekly exports were reported at 20.1m bushels, below forecasts for 28.3m bushels.

Spreads unwound

However, on the price supportive side, there is the potential for corn harvest results to get worse as they reach drought-hit areas of Illinois and Iowa, the top two producing states.

There was also some support to grains from a knock-on effect of short grain-long soybean spreads being unwound.

"The corn and wheat have been supported by the unwinding of soybean/ corn and soybean/wheat spreads," Mr Holaday said.

Furthermore, there is already considerable downside worked into corn prices.

Darrel Good, agricultural economist at the University of Chicago, said that "at this juncture, there is a high probability that the 2013 US corn crop will be large enough to result in a meaningful increase in stocks by the end of the current marketing year.

Still, "prospects of ample supplies point to an average marketing year farm price in the mid $4.00-a-bushel range" not too far from current levels.

Sowings hopes

For wheat, it was notable that the December contract in Chicago, the speculators' favourite, finished down only 0.25 cents at $6.41 a bushel, while in Kansas City, the hard red winter wheat equivalent dropped 2.25 cents to $6.89 a bushel.

But that was not all down to spreads being unwound.

Weather played a part too, with the rains in the Plains boosting prospects for hard red winter wheat sowings.

"Very good rain in the Plains and the prospect for more this week has pressured new crop Kansas City wheat values," Mr Holaday said.

'Export inspections were bullish'

Furthermore, there has been export demand too, with Benson Quinn noting "continued hard red winter wheat sales to Brazil remain the highlight on the export front".

And, indeed, weekly US wheat export data did not disappoint.

"Wheat export inspections were bullish at 46m bushels, well above the 19.1m bushels needed to stay on track to reach the USDA's demand projections," CHS Hedging said.

In Paris, November wheat ended down 0.7% at E186.25 a tonne, weighed by US values.

Mixed softs

Among soft commodities, cocoa avoided the general malaise in commodities, which was seen in a drop in the CRB commodities index too.

The December contract closed up 1.0% at a one-year high for the contract $2,627 a tonne, continuing to gain support from ideas of firm demand and challenges to demand from disease and poor weather in West Africa.

However, raw sugar futures for October closed down 0.5% at 17.01 cents a pound, weighed by the surprising [record] extent of short-covering by hedge funds in the latest week, fuelled by talk of stronger-than-expected demand which has become the subject of much debate.

And cotton for December dropped 0.5% to 84.00 cents a pound in New York, complying with a modestly bearish outlook statement for the fibre from Societe Generale.

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