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Morning markets: ags get off to weak start - even soybeans

Sentiment on broader financial markets was generally sanguine on Tuesday, amid hopes that a resolution to US budget disagreements can indeed be found.

President Barack Obama is reported to have offered concessions including on a position that tax rises should kick in at income levels of $250,000, and on a quest for a permanent mechanism to raise the US debt limit.

Shares closed up 1.0% in Tokyo, while gaining ground on opening in Europe too.

London copper edged higher, while Brent crude added 0.5% to cross back above $108 a barrel.

'Holiday mode'

However, the mood in agricultural markets was less upbeat, if only because Christmas appears already to have arrived, injecting a certain lack of urgency and volume into the market.

"The holiday mode appears to be with us," Brian Henry at Benson Quinn Commodities said, flagging also "limited" selling by producers "despite solid gains last week and firm basis levels".

At RJ O'Brien, Richard Feltes said that "we are reluctant to read too much into pre-Christmas price behaviour on ag markets".

'Weather still looks favourable'

It was especially difficult given the difference of opinion over the South American weather outlook, a key potential market mover at this time of year, when corn and soybean crops are at varying stages of development.

"South American weather still looks favourable," Mr Feltes said, flagging a longer-term outlook from Commodity Weather Group that turned slightly wetter for Brazil, what is needed, while looking drier for Argentina, which has had more than its fill of rain.

Mr Henry said that the "overall weather pattern for South America remains favourable," but added that "a drier trend that is developing in northern regions of Brazil and the return to wetter pattern in Argentina will get some attention from the trade".

'Massive heat dome'

And issued a far more downbeat view, from a producers' perspective, saying that "weather models are developing another massive heat dome over much of southern and east central Brazil, which will keep all of these areas rather hot and dry over the next five days.

"This will cause cold fronts over Argentina to stall, and the models over the next five days show 1-4 inches of rain with 70% coverage over most of central and northern Argentina.

"In the six-to-10 day outlook, the heat dome holds over central and east central Brazil so these areas stay dry," while southern parts and Argentina are in for rain.

Major winter storm?

For the US weather outlook, there was more agreement that rain and snow which had been forecast for dry US hard red winter wheat areas may not reach southern Plains areas which need it.

Sure, the US may be on for a Christmas marked by a "major winter storm for the central and lower Plains and most of the Midwest south of interstate 80," said.

"However, it's quite possible that the blocking pattern over central and eastern Canada may not be that strong," meaning that the "lower Plains and the Delta would stay warm and dry".

At Country Futures, Darrell Holaday said that the weather models have" pushed the brunt of the moisture to the east and southeast, which is similar to the recent pattern of storms.

"It is still showing up, but the moisture intensity has definitely been shifted east."

Below the 200-day

Still, that is only of real relevance for the moment to winter crops such as wheat, already in the ground, but which remains overshadowed by disappointing exports.

Chicago wheat for March eased 0.3% to $8.05 a bushel as of 10:00 UK time (04:00 Chicago time).

While a small move, it was enough, signally, to leave the contract below its 200-day moving average, at a little over $8.09 a bushel, and beneath which the lot closed in the last session for the first time since June.

Technical indicators often take a higher profile when fundamental news is thin, or inconclusive, although Argentina seems to be doing its best to support the grain, with the rain slowing harvest and impairing quality, and potentially prompting a further cut to the country's export quota.

"Argentinean newspapers have speculated that the Argentinean government will cut export quotas by another 25% to 3.4m tonnes because of the poor harvest," Luke Mathews at Commonwealth Bank of Australia noted.

"The reports are unconfirmed but highlight the uncertainty that exists regarding Argentinean wheat exports this season."

Impressive or disappointing?

For soybeans, of course, the demand news has been better, with weekly US export inspections reaching 37.0m bushels, data on Monday showed.

"Export inspections were impressive for soybeans," Mr Holaday said.

Or were they? "

"Weekly inspections were viewed as disappointing," Benson Quinn's Brian Henry said, if conceding that "they remain well ahead of what needs to be done on a weekly basis to meet" US Department of Agriculture expectations for the full 2012-13.

Turning to technicals, one definite negative from the last session was what Phillip Futures termed "a lack of follow-through buying" after the January, and March, contracts returned over $15 a bushel, temporarily as it turned out.

With investors appearing to lack the stamina for now to push the oilseed higher, the January lot eased 0.7% to $14.85 a bushel, and the March contract 0.7% to $14.78 a bushel.

Behind the pace

Against that background, corn, for which US exports are most definitely disappointing, stood little chance of gains, and shed 0.5% to $7.20 a bushel for March delivery.

Latest US weekly export inspection data of 15.0m bushels were a big improvement on the 8.0m bushels a week before, but still well short of the pace needed to meet USDA forecasts.

"Weekly shipments need to average 24.8m bushels per week to meet the USDAs projected 1.15bn bushels in exports for the current marketing year," Mr Henry said.

Softer softs

In New York, soft commodities got off to weak starts too, with raw sugar for March shedding 0.7% to 19.28 cents a pound, losing some of the momentum from short-covering, after regulatory data showed speculators holding an unusually negative stance on the sweetener.

"Temporary short-covering rallies have been a common feature of the sugar market over the past six months," CBA's Luke Mathews said.

Cotton for March eased 0.2% to 75.72 cents a pound, after closing the last session at its highest since late October, boosted by last week's cut by the USDA to estimates for US stocks at the close of 2012-13, and by firm export data.

"We note that the last assault on 76 cents a pound was quickly followed by a three week, 9% slump in values," Mr Mathews said.

"While we acknowledge that some of the data since October has been a little more promising, we still believe that the expected record large global cotton stockpiles will to pressure prices lower over the next six months."

Evening markets: soy loses grip on \$15. Grains retreat too
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