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Evening markets: sugar hits 3-year low. But grains hold firm

Have sellers in grains and oilseeds misplaced a little of their mojo?

Certainly, soybean futures showed some resilience after their poor performance in the last session, which some investors feared had opened up the oilseed to a typical seasonal tumble, known as the "February break".

Chicago's March soybean contract closed down, but only by 1 cent at $12.79 a bushel a two-month closing low, for sure, but well above the low of $12.72 a bushel reached earlier.

Soymeal managed to close higher, up 0.7% at $419.40 a short ton for March, although soyoil, the other main soybean processing product, fell 0.7% to 37.84 cents a pound, undermined by weakness in futures in rival vegetable oil palm oil.

Palm oil for April dropped 0.5% to 2,574 ringgit a tonne in Kuala Lumpur.

Technically, soyoil futures are "trading in a narrow, upward trending trading range that may prove to be a bear flag", Anne Frick at New York-based Jefferies Bache said.

Argentine weather

There was some sign of cracking in both of the fronts that soybeans were attacked on in the last session, driving prices down more than 2%.

On the Argentine weather issue, sure, the country, which has been beset by unduly hot and dry weather, will receive some relief.

In the one-to-five day outlook, "the European and the GFS weather models show significant rain and thunderstorms over 70% of Buenos Aires province of 1-3 inches, and 1.0-1.5 inches over 50% of Cordoba, the southern half of Santa Fe and southern Entre Rios", said.

"On the other hand, the models continue to show that the western half of central and northern Argentina will see only moderate or light rains over the next five days, with amounts under 1.0 inch."

'Heatwave building'

Meanwhile, the six-to-10 day outlook, was looking hotter.

"Yesterday there was no hint at all that the heatwave is going to make a comeback in Argentina," the weather service said.

"The model data is a little different today. The European and the GFS models clearly showed the heatwave in the south central Atlantic Ocean building back into eastern and south eastern Brazil, and then eventually into northern and central Argentina."

At least, for row crop bears, "this will cause a new round of significant thunderstorms and steady rain over Entre Rios, Corrientes all of Santa Fe, the northern half of Cordoba and all of Santiago del Estero".

Brazil vs US

The other main concern is of Chinese buyers cancelling orders of US soybeans and switching to South America a threat enhanced by a strong start to Brazil's harvest, and ideas that lower volumes of corn exports will allow the South American country to avoid logistical hiccups this year.

Darrell Holaday at Country Futures reported a "strong indication that China cancelled three cargos of US soybeans yesterday and moved them to [origin] Brazil.

"The current price in the US is $0.85 a bushel over the Brazilian market."

Paul Georgy at broker Allendale said: "There is continued talk of China beginning to shift soybean shipments from US to Brazil.

"Basis levels will provide an advantage to buyers going to Brazil in a few weeks."

No confirmation

However, there was no confirmation of the cancellations.

"The market will be looking for confirmed cancellations from China," US Commodities said earlier in the session.

"If the rumours do not materialise, the soybean market may be setting up for an oversold bounce."

And even if the cancellations do prove true, 165,000 tonnes represents only a small portion of the 8.0m tonnes of unshipped Chinese orders from the US as of January 9.

Furthermore, although Celeres estimated that Brazilian farmers had sold just 42% of their soybean crop, down from 56% a year ago, indicating more in the way of unfulfilled selling pressure, US growers have done better, with 60-70% of their crop priced, according to US Commodities.

'Stronger basis levels'

That is more than the 40-50% of their latest corn crop that US growers have sold, again implying unfulfilled selling pressure.

Still, it is also propping up the US cash market for corn, in which weather is a factor too, in that cold temperatures are seen disrupting logistics.

"The corn market has been supported by stronger basis levels as cash merchandisers need some grain and they are finding an uninterested producer given the cold temperatures in the Midwest," Country Futures' Darrell Holaday said.

At RJ O'Brien, Richard Feltes flagged the boost to grain prices from "a cold Midwest weather pattern that may slow grain movement through late February."

'Margin collapsing'

The market forces were not all positive, with Mr Holaday also flagging a negative to the corn market from a downturn in ethanol prices, which tumbled by 1.1% to $1.789 a gallon in Chicago, for March delivery.

That extended above 6% losses from a January 13 high of $1.917 a gallon.

The margin for ethanol producers "is collapsing", he said.

Still, corn for March closed up 0.3% at $4.26 a bushel, regaining, just, its 10-day and 20-day moving averages.

Cold concerns

Wheat, meanwhile, was a mixed bag.

Higher protein wheat did well, lifted by the US winning 50,000 tonnes of a 350,000-tonne order by Iraq of hard wheat, with 200,000 tonnes going to Australia and 100,000 tonnes to Canada.

Furthermore, concerns about crop damage from the US weather remain alive, at least for some southern areas of the US hard red winter wheat country.

"Dry conditions in the Plains starting to get the attention of an oversold futures market," Mr Holaday said, with dryness meaning less protection from cold temperatures, besides less moisture in the soil when the spring growing season comes.

'Little snow cover'

US Commodities flagged price support from "signs that winter crops in the US will not have enough snow cover to insulate them from damage if temperatures drop.

"While areas of the eastern US contend with winter storms today, much of the Great Plains, including top winter-wheat grower Kansas, has little snow cover."

Hard red winter wheat for March closed up 0.6% in Kansas City at $6.25 a bushel.

In Minneapolis, hard spring wheat for March ended up 0.5% at $6.13 a bushel.

Paris vs Chicago

But soft red winter wheat for March fell in Chicago, by 0.2% to $5.61 a bushel, despite a relatively positive note from Standard Chartered, hurt in part by ideas of sufficient snow cover in the Midwest, its core growing area.

Furthermore, the US missed out on a 500,000-tonne milling wheat order by Algeria, thought to have gone to France, a rival supplier of soft wheat.

Certainly, Paris wheat for March performed better, adding 0.4% to E193.00 a tonne for March delivery.

London wheat, caught between Paris strength and the depressant of a firmer pound and, remained unchanged at £151.75 a tonne.

Out of favour

Among soft commodities, raw sugar futures dropped below 15 cents a pound for the first time since June 2010, depressed by continued expectations of ample supplies in 2013-14.

While Australia & New Zealand Bank cautioned investors against getting too bearish on sugar, with dryness potentially an issue in Brazil, and hedge funds looking to have limited selling pressure left, Sucden Financial cautioned that change in sentiment may be unlikely, at least before next month's Dubai conference.

Raw sugar for March ended down 1.3% at 15.03 cents a pound, having hit 14.97 cents a pound earlier.

A weaker Brazilian real, down 0.7% against the dollar to R$2.37 to $1, did little to help, pressing too on arabica coffee, which for March closed down 1.1% at 114.85 cents a pound in New York.

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