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Evening markets: US sowings fears give corn rally new life

A bit of a negative day for equities contrasted, as so often happens, with a firm day for agricultural commodities - especially sugar.

Stock markets succumbed to a little selling pressure after the HSBC-Markit "flash" Chinese purchasing managers' index came in at 48.3 for April – up from 48.0 last month but still below the 50.0 neutral level.

Falls were not heavy, but widespread, with Paris stocks among the worst performers, shedding 0.7%, while the Nasdaq was down 0.8%.

'More problems with China'

Among agricultural commodities, soybeans, of which China is the top importer, proved soft too, falling 0.4% to 14.64 ¾ a bushel for July delivery, a fourth successive negative close.

Concerns over Chinese defaults and cancellations of soybean import orders, amid waning margins and clampdown on a credit wheeze for which merchants have been using the oilseed and other commodities, have been a growing concern for investors.

Such concerns have been supported by reports that two Marubeni cargos bound for China have been diverted instead to the US, whose tight balance sheet requires imports to resolve.

"More problems with China and more imports into the US are breaking down the front end of this market," Darrell Holaday broker Country Futures said.

Old crop vs new

Furthermore, the Rosario Grain Exchange raised its forecast for the Argentine soybean crop to 54.9m tonnes, a rise of just 200,000 tonnes but notable that many other forecasters have been cutting harvest expectations following recent rains.

The US Department of Agriculture has forecast a 54.0m-tonne crop, as has the Argentine farm ministry and the USDA's attaché in Buenos Aires in a report overnight, which also highlighted growing farm stocks in the South American country.

Still, bulls had some compensation in that the technical structure of the market, while damage, is not destroyed yet, with the July contract, for instance, finding support at its 20-day moving average.

"It may take a sharp drop in weekly exports, yet to be seen, or more news about large US imports before there can be any significant sell-off in this market," Jefferies Bache said, if taking a rather bearish view on the oilseed.

Signally too, new crop November soybeans rose 1.0% to $12.27 ½ a bushel, rising back above their 10-day moving average.

But was this down just to long old crop- short new crop spreads being unwound (or bets on the reverse being put in?)

"Profit taking in the old/new calendar spreads has been a feature again in today's trade," Benson Quinn Commodities said.

Soybeans vs corn

 Another prop for the contract was a rise in new crop December corn.

The November soybeans vs December corn is a much-watched spread at this time of year, viewed as a sign of the relationship between the two crops in growers' spring sowing plans.

And, indeed, corn for December enjoyed a strong session, adding 1.7% to $5.04 ½ a bushel, retaking its 10-day and 20-day moving averages.

That shifted the soybean:corn ratio back a notch to 2.43:1, still tilted towards the oilseed but well below levels approaching 2.60 it has reached.

Change in the forecast

And as to why there should be buyers of new crop corn, concerns over the prospects for US plantings shifted up a gear, despite brokers' reluctance to put their fingers anywhere near the panic button.

The latest run of the GFS weather model "is supporting the corn market", in saying that rain scheduled for the weekend through the Midwest is now expected to "hang around the central part of the Corn Belt through Wednesday of next week", Mr Holaday said.

That would slow sowings, which are already running behind schedule.

"Keep in mind that there are private reports of a lot of corn going into the ground this week in large parts of Illinois, Missouri and Indiana," he added, on a more bearish note.

'Planting delays may be unavoidable'

MDA said that while only "limited" rainfall so far this week have allowed sowings "to progress well" in the Midwest and Delta, "rains should build across these areas later this week and over the weekend, which will slow planting again".

The biggest delays will be seen in the west central Midwest, with eastern areas seen as proving less sodden.

Gail Martell at Martell Crop Projections cautioned that "Midwest corn planting delays may be unavoidable this spring, as cold spring temperatures are due to be followed by excessively heavy rainfall next week.

"The GFS forecast is extremely wet in the Midwest, calling for 2-4 inches of rainfall with a slow moving storm.

"Some farms in Missouri, Illinois and Wisconsin could receive 4-6 inches of rain… the equivalent to a month's worth of May rainfall," Ms Martell added.

"Significant corn planting delays would result from excessively wet field conditions."

Ethanol data

The news on corn was not all so bullish, with US weekly ethanol data far less encouraging than last time.

Production tumbled 29,000 barrels a day last week to 910,000 barrels a day, while stocks rose by 566,000 barrels to 16.52m barrels.

Still, ethanol itself gained, adding 0.7% to $2.119 a gallon in Chicago for July delivery, apparently more fixed on production, as it was last week, than inventories.

And old crop corn felt some boost too from spreads against soybeans.

'Spread unwinding'

"Spread unwinding is the feature as traders wait for news," Paul Georgy at Allendale said.

"The long soybean-short corn spreads have been a feature the last few months.

"In this position traders are short two or three contracts of corn for every one long contract of soybeans.

"The news of China's soybean purchases or cancellations will impact spreaders biases."

Corn for July closed up 1.5% at $5.09 ½ a bushel,

Mixed signals

That was a prop to wheat too, as were continuing tensions in Ukraine.

"Ukraine has announced that they have the US backing to take back control of Russian occupied government buildings in eastern Ukraine," CHS Hedging noted, hardly a dynamic likely to warm Kiev-Moscow relations.

Still, wheat did not have the weather forecast to match corn's gains, with some forecasts seeing rains bound for the drought-hit southern Plains, although not all commentators agreed.

"We feel the GFS is not as promising as it was for the hard red winter wheat Plains areas, but there are certainly mixed signals. But that is one of the factors supporting wheat today," Country Futures' Darrell Holaday said.

Chicago wheat for July added 0.5% to $6.82 ¾ a bushel.

'Row back dryness concerns'

In Europe too, many dry areas are receiving rain relief.

At INTL FCStone, Jaime Nolan Miralles said that France, the top EU wheat producing country, "can expect some good rains, particularly in the north east.

"Poland also, which will row back dryness concerns there further," although Germany and Hungary "still see some areas holding a drier outlook".

Paris wheat for May ended unchanged at E214.75 a tonne, with the November contract edging 0.4% lower to E202.50 a tonne.

Sugar soars

The standout performer among agricultural commodities was actually among the softs, and raw sugar, after Unica forecast a drop in Brazilian Centre South sugar production in 2014-15 beyond that expected by many commentators given the region's drought.

Signally, rather than seeing the revival in sugar prices swinging more cane back to making the sweetener, rather than ethanol, mills will actually raise their focus on the biofuel, Unica said.

Raw sugar for July soared 2.0% to 17.98 cents a pound.

Arabica coffee, also being supported by concerns for the impact of Brazilian drought, couldn't match that, but managed gains nonetheless, adding 0.3% to 213.95 cent a pound, and earlier setting a two-year high for a nearest-but-one contract of 219.00 cents a pound.

Cheaper cotton

Cotton faced the contrasting forces over concerns over dryness in Texas, the top US producing state, a bullish factor, but the bearish dynamic of fears over China's economy.

China is the top cotton producer, consumer and importer.

In the end, July cotton dropped 0.7% to end at 92.64 cents a pound.

Sugar price gains on weak Brazil output forecast
Morning markets: soybean futures sink as China jitters mount
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