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Evening markets: wheat rally stutters but wetness lifts corn

It wasn't so long ago that ideas of dryness were lifting wheat futures, and of wetness sinking corn.

No longer.

In a sign of the changed fundamentals, Kansas City hard red winter wheat, which had traded 1.4% higher earlier, gave back nearly all its gains as a drier turn in the outlook for its growing belt, in the central and southern Plains, was seen as reducing the threat of moisture damage to crops.

"Wheat futures have sold off primarily as a result of weather models that are indicating a solid weekend of wheat harvest before rain moves into the Kansas harvest area early next week," Darrell Holaday at Country Futures said.

Rains, which would have been so welcome earlier in the growing season, are now regarded as something of a threat, in potentially promoting sprouting in ripe wheat, risking a downgrade and so squeezing further supplies of acceptable milling quality grain.

Hard vs soft

Not that all indicators for wheat are negative, with the US cash market for wheat proving firm, as it is for corn and soybeans too.

"Basis levels have a firmer tone for wheat and spreads are narrowing. Pipeline supplies have dwindled and winter wheat harvest is slow," CHS Hedging noted.

And weekly wheat exports were reasonable, at 372,600 tonnes for the newly-started (for US wheat) 2014-15 season, just within the range of market expectations.

Still, it was Chicago soft red winter wheat, the world benchmark, which actually performed better, enjoying a late bounce to close 1.1% higher at $5.93 a bushel.

Kansas City hard red winter wheat for July ended 0.2% higher at $7.29 a bushel

Disease risk

That was in part down to the extent of the hard red winter wheat premium, with CHS noting that "the Kansas City-Chicago wheat spread is historically wide", raising concerns of the former being "priced out".

Furthermore, even if concerns over hard red winter wheat have eased a touch with the weather outlook, those for soft red winter wheat, grown in the increasingly wet Midwest, have not.

Allendale's Paul Georgy noted a University of Illinois report "that head scab of wheat, Fusarium head blight, is now showing up in portions of southern Illinois", a major soft red winter wheat state.

This is an observation which would tie-in with a sharp downgrade in the state's official wheat crop rating earlier this week.

"The early soft red winter wheat crop does have plenty of quality problems," Benson Quinn Commodities said.

'Large amounts of rain'

Meanwhile, the concerns over increasing Midwest damp proved an even bigger prop to corn futures.

"Some buying, mostly short-covering, is tied to concern about too much rain in parts of the Midwest," Country Futures' Darrell Holaday said, adding that the rains were "also supportive for the soybean complex".

CHS Hedging said: "Large amounts of rain continue to fall in many parts of the Corn Belt.

While worries were thus far "minimal, continuation of these rains will most likely raise the level of concern".

And the rains are indeed expected to continue, with MDA noting a "wetter" tone to the Midwest forecast for Sunday.

"Rains should be active across north western, north central and south eastern areas through Saturday," with falls up to 3 inches and 90% coverage, the weather service said.

Chart factors

Futures also got a help from technical factors.

"Much of the buying in corn is tied to the technical support at $4.35 a bushel on the December corn contract holding earlier this week," Mr Holaday said.

The contract got as low as $4.36 a bushel on Tuesday, but not to $4.35 a bushel, the contract low set five months ago.

Furthermore, the contract closed for the first time since May 8 above its 10-day moving average, in jumping 1.8% to $4.47 a bushel.

Ditto, the July contract, which ended up 2.0% at $4.50 a bushel, shrugging off poor weekly US export sales data, at 109,000 tonnes for 2013-14, "down 73% from the previous week and 79% from the prior four-week average", according to the US Department of Agriculture.

Wetness concerns

Soybeans extended their recovery too, helped by the wet Midwest weather.

There is a market saying that "soybeans don't like wet feet" which has yet to emerge this year, but is it only a matter of time?

Wetness further north in Canada is proving an issue too for the oilseeds complex, in hampering sowings of canola, the rapeseed variant.

"Wet weather may prevent some intended canola area from being planted in parts of Saskatchewan and Manitoba," Anne Frick at Jefferies Bache said, although more may be known after Statistics Canada data on Friday.

Canola futures for November rose 0.3% to Can$465.50 a tonne in Winnipeg for November delivery, extending nearly to 4% their recovery from last week's low

Strong exports

Soybeans also got help from US export sales of 97,900 tonnes, a figure which, while not huge in itself, was positive, stretching even further the tight US balance sheet.

The US has now sold for export or already shipped 45.16m tonnes of soybeans for 2013-14, 1.6m tonnes more than the USDA forecasts for the whole of the season, which has more than two months left to run.

Of course, there are ideas that the US has underestimated the size of last year's domestic crop meaning there are more left to sell.

"We continue to sell old crop soybeans. The trade must feel comfortable the supplies are there," CHS Hedging said.

Still, the broker also noted that "South American basis levels continue to firm with prices up $0.40-0.60 a bushel over the past three weeks", boosting prospects for rival exporter the US.

Soybeans for July ended 0.8% higher at $14.20 a bushel, with the new crop November lot adding 1.2% to $12.27 a bushel.

Mixed cotton

Among soft commodities, sugar found winning ways too, for reasons discussed elsewhere on

But cotton had a strangely mixed day, with the new crop December contract closing 0.1% down at 77.13 cents a pound, while the old crop July lot tumbled 3.1% to 88.36 cents a pound.

And this despite decent US weekly US export sales which might have been expected to lift the July contract.

"Net upland sales 153,100 running bales for 2013-14 were up noticeably from the previous week and 4% from the prior four-week average," the USDA said.

Funds move house

Still, new crop cotton had two factors in its favour, the first being the drier outlook for the southern Plains which hurt wheat, with Texas the top US cotton producing state.

Drier weather, while good for harvesting, is a setback for spring crops requiring moisture to grow.

The second is a technical boost, with funds clamouring to switch positions to the December contract from July, which expires on July 9. (New York's October contract is little traded.)

 "Funds want to get out of July and get into the December lot there is no place else to go," Sterling Smith at Citigroup told

Paris underperforms

Back among grains, Paris wheat underperformed its Chicago peer in shedding 0.1% to E188.25 a tonne for November delivery.

That was in part related to the lateness of the rally in Chicago, the world benchmark, with the rebound occurring only after Paris trading had closed.

Furthermore, Strategie Grains lifted its forecast for the EU wheat crop by 2m tonnes.

Weekly European Union exports were in fact respectable for the time of year, at 348,000 tonnes, taking the total for 2013-14 to a record 27.5m tonnes with a couple of weeks to go.

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