Not since June has wheat fallen below $7 a bushel in Chicago.

It did again on Monday, with the March lot dropping to $6.98 a bushel in late deals, before closing at  $6.99 ¼ a bushel, down 2.2% on the day.

The May contract, which is now the best traded, ended down 1.9% at $7.05 ¼ a bushel.

And this when, by contrast, Chicago corn kept its footing, closing up 0.5% at $6.93 ½ a bushel for March, and by 0.2% at $6.85 ½ a bushel for May.

This reduced the discount of corn and wheat to less than $0.06 a bushel for the spot contract, what appears to be the weakest since May last year.

'No more than pain relief'

OK, it was always going to be difficult for grains and oilseeds to show mega-gains on Monday, given the prospect of huge crops ahead in 2013 which are increasingly grabbing investors' attention.

"Bullish participants in the market retain the appearance of a terminally-ill patient in denial of the assured pending outcome fast approaching," Jaime Nolan-Miralles at broker FCStone said.

"Logistical delays in Brazil, expected Chinese buying in soybeans post its holiday season and possible adverse weather appear to be no more than pain relief for what is in effect a market on the cusp of a notable rebound in supply for 2013-14."

All this, of course, is reflected in the bearish position which speculators have taken this month, driving their net short positions in the likes of New York arabica coffee and raw sugar futures and options to record highs, and a massive drop in net long holdings in corn.

'Funds are liquidating'

In fact, speculators' net long in major US-traded commodities fell to its lowest level since March 2009 in the week to last Tuesday, according to Rabobank.

"This was the second consecutive week of managed money net long positions declining by over 100,000 contracts, and only the second time on record," the bank said.

US Commodities said: "The market now believes large production is highly possible," after forecasts for huge US crops were underlined by the US Department of Agriculture at its Outlook conference last week, and with South American weather improving.

"Funds are liquidating their long positions."

'Moisture deficit cut in half'

However, investors found extra cause to put wheat through the mangle, despite Friday's positive US weekly export sales data, of 766,000 tonnes.

The main one is the precipitation which is improving prospects for US winter wheat regions where drought has been setting back seedlings.

(More will be revealed on crop condition in monthly data due out on some US states later on Monday.)

"The morning radar shows very heavy precipitation in the southern Great Plains including previously dry wheat areas of the Texas panhandle," Gail Martell at Martell Crop Projections said.

"Drought is rapidly resolving from back-to-back snow storms. Very heavy precipitation last week cut the Kansas moisture deficit in half."

'Massive weather system'

In fact, more moisture is on its way to the southern Plains, and "seems to be tracking south of the previous storm and could offer rain and a foot or more of snow to portions of Oklahoma and north Texas", Benson Quinn Commodities said.

Weather service WxRisk.com said: "The next weather system is going to be a massive one that will strongly impact the central and lower Plains over the next 48 hours. 

"Blizzard warnings are in effect for the entire Texas and Oklahoma, panhandles as well as eastern Colorado and south western Kansas."

Furthermore, "there may be another rain and snow event for the lower Plains, March 4-5", WxRisk.com added.

Demand setback

Then, as if easing supply pressures were not enough to cheer bears, the demand picture got a dent too, from the growing ideas that Egypt, the top wheat importer, may be sidelined from purchases for some time.

"Comments out of Egypt on the weekend indicated they had a 10-month inventory of wheat and would not be in the market for wheat for a while added to downward pressure," Darrell Holaday at Country Futures said.

"There is really a lot of question as to whether that is true, but it has certainly pressured the market."

That was true in Europe too, where Paris wheat for May dropped 1.7% to E233.50 a tonne, the contract's lowest close for seven months.

London wheat for May lost 0.5% to £205.15 a tonne, at least given some protection by the weakness of sterling, exacerbated by the UK's downgrade by Moody's.

'Physical prices remain firm'

Corn's better performance reflected some more positive news on the demand front, with the USDA unveiling US sales of 127,000 tonnes of corn to "unknown destinations" – some of it for 2012-13 delivery.

This just as importers were seen preferring by a distance alternative origins, including Brazil (strikes allowing) and Ukraine, where supplies are less constrained than in the US.

After all, in the US, "commercial traders are still finding it difficult to buy corn, and whilst the futures have fallen in the face of fund selling, physical prices in the US remain firm", a major European commodities house noted.

And this when speculators have sold down their net long position in corn futures and options so much – by more than 110,000 contracts, or 65%, in two weeks – that many believe hedge fund appetite for a further negative lurch is limited for now, despite ideas of a huge US crop coming in 2013-14.

"By now, most of the news of increasing supply should be priced in," Commerzbank said.

Speedy harvest

Would soybeans side with corn or wheat?

The oilseed had export demand on its side, with the USDA unveiling sales of 120,000 tonnes to China, of new crop.

But growing ideas of a resolution to the Brazil port strike, which has been shifting demand to the US, besides data from AgRural showing the South American country's soybean harvest 27% complete - ahead of the 20% a year ago, despite some heavy rains – suggested lower prices.

As did a weakened technical picture, after the oilseed's late pullback in the last session, which took the March contract back to its 200-day moving average.

US buying from Paraguay?

In fact, the contract fell through its 200-day, 20-day and 100-day moving averages on Monday, in dropping 0.7% to $14.51 ¼ a bushel.

The better-traded May lot ended down 0.6% at $14.35 ¼ a bushel.

Rumours that the US is turning too to South America for soybeans did little to help, with the talk going that east coast US livestock feeders have bought some Paraguayan soybeans for shipment into Norfolk, Virginia.

"It is true that about 1bn bushels of corn will need to be rationed and about one-third of the US soybean crush," US Commodities said.

"Brazil imports could bridge the gap."

'Positive production developments'

Moves among soft commodities were a little lower too, defying ideas that speculators huge net short positions in raw sugar and arabica coffee would at least see these contracts bounce, on ideas that appetite for further short positions would be limited.

That worked for a bit in helping raw sugar, which traded in positive ground for most of the day in New York, also gaining support from a Macquarie caution over the extent of negative consensus, before the pressure returned to send the May lot down 0.3% at 18.09 cents at the close.

Arabica coffee for May lost early gains to end down 0.5% at 143.10 cents a pound.

Macquarie said: "While the problems in Central America continue to be a serious threat for next season's production," a reference to disease pressures, "positive production developments elsewhere are countering this."