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Morning markets: cash market fears dent soy. But wheat gains

Tuesdays often, of course, bring reversals on Chicago's grains market of a strong trend the previous session.

The so-called "turnaround Tuesday" idea beloved of traders would dictate higher trading this time, after Monday's losses in soybeans especially.

However, soybeans remained under the cosh in early deals, suffering from a variety of headwinds.

Some of these concerned the old-crop September contract, which had been something of a beacon of hope for bulls, showing decent gains last week attributed to a strong US cash market, as crushers scramble for what few supplies are left from the 2013 harvest.

There are signs that a tipping point may be being passed, as regards supplies from the newly-started US harvest becoming available, at much lower price than the 2013 barn scrapings.

Cash market u-turn?

At Chicago broker RJ O'Brien, Richard Feltes flagged talk of processors in Decatur, Illinois raising basis (the gap between cash prices and futures prices) while basis in Mankato, Minnesota, where the likes of Archer Daniels Midland and CHS have crushing plants, is "breaking".

"The break in soybean and soymeal spreads us related to a stepped-up southern soy harvest and/or bull spreader profit-taking ahead of Friday's first notice day."

First notice day refers to the beginning of the expiry process for September soybean futures, bringing them physical delivery manifestations which drive speculators to close positions, if they have not already done so, and can make for some volatile trading.

Profit taking by bull spreaders refers to the closing of long bets on the September contract hedged against short positions on further ahead futures.

And indeed, September soybeans, in falling 1.6% to $11.08 a bushel as of 09:40 UK time (03:40 Chicago time), and bean-crushing-product soymeal, in dropping 1.5% to $400.00 a short ton, underperformed later contracts.

'Ease dryness'

But it was not as if the later contracts performed so well either, against a background of strong US harvest expectations.

While US Department of Agriculture data overnight showed a slight decline in the soybean crop rating, by 1 point to 70% rated "good" or "excellent", that still left it as the best on data going back to 1994.

And there hardly looks much risk of it deteriorating, with further Midwest rains in the forecast.

"Rains should continue to ease dryness in north east Iowa, southern Minnesota, south west Wisconsin and north west Illinois this week," MDA said.

"Conditions and weather forecast for warmer temperatures through the first week of September point to more downside [to prices]," Benson Quinn Commodities said.

'Favourable yields'

Besides, results from the early US soybean harvest, from southern areas, are already coming in strong.

"Favourable corn and soybean yields have started to flow in," one broker said.

At Futures International, Terry Reilly said that he was "hearing that harvest in Louisiana and the Far South is far better than expected".

Chinese influence

November soybeans dropped 0.4% to $10.25 a bushel, while December soymeal fell 0.2% to $343.00 a short ton.

Soyoil, the other main soy crushing product, performed poorly in falling 0.6% to 32.76 cents a pound for December, feeling continued pressure from rival vegetable oil palm oil, which tumbled 1.7% to 1,995 ringgit a tonne, albeit not getting back to the five-year low of 1,954 ringgit a tonne reached on Monday.

In China, the top soybean importing country, soybeans for January actually performed strongly, in adding 1.2% to 4,554 yuan a tonne, although it was not clear if this was down to the prospect of a headwind to foreign supplies.

As Mr Reilly noted, "there is growing concern some China commodity import companies are finding it harder to secure financing".

Ukraine dryness

Corn did manage a bit of a turnaround, in adding 0.2% to $3.68 a bushel for December delivery, despite an increase in the US crop condition rating, to 73% rated good or excellent, promoting the crop to the best rated on data going back to 1994.

US weekly export data released on Monday were strong, at 43.0m bushels.

And, looking to Ukraine, the top corn exporter outside the Americas, dry weather earlier this month deemed by the European Commission's Mars unit as "optimal for the harvesting of winter and spring cereals" were less supportive for yields of autumn-harvested crops.

"Conditions are expected to negatively impact the yields of grain maize," Mars said.

North Africa importer news

Corn got help from fellow grain wheat too, which gained support on the demand side from the return of Egypt's Gasc grain authority to purchasing, with a tender announced overnight.

The results, due later today, will give an insight into cash market competitiveness of different origins, and while Russia will likely win orders, its relatively firm prices could show its advantage reducing.

Furthermore, Algeria's OAIC, another major importer, said that it would not accept imports containing wheat from mixed origins a setback to French traders, which have been looking to imported supplies to make-up for the poor quality of a rain-affected domestic crop.

France is the default origin for Algerian wheat imports.

Rain damage?

The quality of the US crop remains under the microscope too, with the soft red winter wheat crop proving to have unusually high levels of vomitoxin, a toxic fungal residue, which has been seen as a potential problem for the US spring wheat crop too, in the early stages of harvest.

In fact, "based upon early harvest, vomitoxin does not seem to be an issue with the spring wheat crop except for a few isolated areas or fields where fungicide was not applied," CHS Hedging said.

But the quality of the crop is certainly in decline heading into harvest, with the same rains boosting corn and soybean prospects a setback for ripe wheat.

The proportion of US wheat rated good or excellent fell by 2 points to 66%, not a bad rating but below last year's 67%.

The rain is slowing harvest too, seen as 27% complete, well behind the average of 49%.

Wheat for December rose 0.5% to $5.57 a bushel in Chicago.

Data later

Among soft commodities, New York raw sugar for October recovered 0.5% to 15.43 cents a pound, ahead of the latest figure from cane industry group Unica on the Brazilian Centre South cane harvest.

There has been talk of a slower harvest, and that Unica may also reveal a downgraded forecast for the region's 2014-15 cane crop.

Evening markets: palm oil recovers, but soybeans stumble
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