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Morning markets: China drags on soybeans. Grains fall more

It's a big few days for agricultural commodity data.

Today will bring the US Department of Agriculture's monthly Wasde crop report, giving fresh supply and demand estimates for world grains, cotton and oilseeds and domestic meat and dairy.

On Wednesday, Conab, the Brazilian crop bureau, releases its latest estimates for domestic grains and oilseed crops - whose fate is being closely watched given setbacks in harvesting in some areas, besides the typical logistical hiccups, are viewed as part of the strength behind US soybean prices.

"With South America's persistent production issues as well as harvest delays, it shifts the focus to US soybeans in this period of time when the focus should be on South American soybeans," Vanessa Tan at Phillip Futures said.

Palm oil data

The first round of data has already been.

Actually, for markets as a whole there were some key data over the weekend in terms of Chinese trade data, broadly viewed as negative in showing exports down 18.1%, year on year, last month in dollar terms.

This apparent evidence of a not overly healthy Chinese economy sent shares down 2.9% in Shanghai, with Hong Kong stocks down 1.8% and Tokyo shares closing down 1.0%.

But for palm oil investors specifically, there has already been some statistics with the Malaysia Palm Oil Board estimating domestic inventories of the vegetable oil falling to 1.66m tonnes last month, down 14.3% from January.

That was viewed as a bullish figure, in coming in below the 1.76m tonnes that investors had expected, and with the data showing in particularly a poor showing for production, underlying concerns over prospects for supplies given the dry weather testing plantations in Indonesia and Malaysia.

Palm oil for May stood up 0.7% at 2,905 ringgit a tonne as of 09:30 UK time (04:30 Chicago time, remember clocks went forward in the US at the weekend), having earlier hit 2,910 ringgit a tonne for the first time since September 2012.

Dalian soybeans tumble

That was some help to prices of rival vegetable oil soyoil, which gained 0.4% to 44.51 cents a pound in Chicago for May delivery.

This was, technically, unexpected, given that the contract in the last session recorded an outside day (ie trading beyond the range of the previous session) but closed lower, viewed as a negative chart signal.

Still, reversal was a bit of a theme, with soybeans themselves for May standing down 0.5% at $14.50 a bushel, little helped by sharp drop in prices in China, the top importing country, where Dalian soybeans for September, the best-traded contract, settled down 2.3% at 4,367 remninbi a tonne.

China imported 4.81m tonnes of soybeans last month, down 18.6% month on month, the Chinese trade data showed.

Indeed, Chicago markets have been alive with rumours of Chinese crushers having trouble swallowing what soybeans they have already ordered, with talk of backlogs at pots.

And this when, in Chicago, speculators have built up a large net long position in soybean futures and options already, of 208,000 contracts, the biggest since September 2012, and offering plenty of scope for profit-taking at prices amongst their highest since July.

'Diminishing supplies'

The temptation was further enhanced by the prospect later of the Wasde, expected to show a small downgrade in the US stocks estimate - but with plenty of uncertainty about how the balance sheet will be made up, and at a crucial time given the tightness of US supplies.

Indeed, one factor mitigating against a tumble in prices is a reluctance among US producers to sell at these elevated prices, unlike in corn.

"Producers continue to offer diminishing supplies into this rally," Brian Henry at Benson Quinn Commodities said.

"Despite being overbought, old crop soybean futures continue to gain support from the prospects of tighter old crop supplies, while the technical structure of the market remains supportive."

CHS Hedging noted, as another supportive factor, that "it still doesn't pencil to bring soybeans or meal into the US from South America, keeping our balance sheets tight".

Phillip Futures' Vanessa Tan said that unless rival exporting countries in South America were able to "get supplies to the overseas market effectively, we remain bullish on US soybeans as the focus on US soybeans will continue tapping on the tightening US supplies".

'Weakening basis levels'

On grains, there is less reason for thinking of worryingly tight supplies, in the US or elsewhere.

Not that sentiment is bad, as shown by the increase by hedge funds in their net long in Chicago corn futures and options by 71,000 contracts in a week to 158,000 lots, the highest in nearly a year.

"We expect prices to continue being supported by robust export demand and ongoing turmoil in the Black Sea region as it does not seem like the tensions between Ukraine and Russia will be ending anytime soon," Ms Tan said.

Still, Luke Mathews at Commonwealth Bank of Australia flagged talk that "farmer selling has reportedly increased sharply over the past week in response to the firmer prices on offer.

"This, in turn, has contributed to weakening US basis levels. "

And, with the uncertainty prompted by the Wasde later, Chicago corn for May eased 1.4% to $4.82 a bushel.

'Back in the market'

Wheat posted a similar decline, dropping 1.0% to $6.47 a bushel in Chicago for May delivery, undermined by Wasde uncertainty, and no apparent rise in Ukraine export uncertainties.

Indeed, there is talk now that farmers, rather than holding off sales with the hryvnia weakening, may be accelerating them to exploit what decline there has been and raise cash for spring plantings.

"Farmers are back in the market and are currently selling their production before the sowing period starts," Agritel said.

As an extra pressure, Canada has acted to boost its grain exports, demand that Canadian Pacific Railway and Canadian National Railway increase the volumes carried each week over a period of four weeks to move 1m tonnes of grain each week, or face a penalties of up to Can$100,000 a day.

Indeed, oats, for which Canada's logistical problems have caused a particular rise in prices, given US needs for imports, extended a decline on Monday, dropping 5.8% to $4.20 a bushel for May.

Evening markets: corn drops from high. But wheat holds firm
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