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Morning markets: corn resumes downtrend. As for wheat...

One of the intriguing factors in the wheat markets since the end of June has not been so much the drop in prices, which is relatively easily explained, but the performance of the different wheat classes.

It might have been expected that hard red winter wheat, as traded in Kansas City, would fare well given the mounting concerns over the quality of Europe's crop.

After all, the specifications at which the rain-damaged French crop will be available, as defined by the qualities needed for delivery against Matif futures, have been compared to those of soft red winter wheat,  as traded in Chicago meaning extra competition on this score.

Yet it is Chicago soft red winter wheat futures which have outperformed, closing the discount against Kansas City hard red winter wheat from an intraday high of $1.38 a bushel on June 30 to $0.74 a bushel on Thursday.

Kansas vs Minneapolis

Signally, Kansas City wheat has lost ground against Minneapolis hard red spring wheat, which has even higher protein levels.

The Minneapolis September contract closed above its Kansas City peer in the last session for the first time since January, reversing a discount of some $0.25 a bushel at the end of June, and $0.40 a bushel in early May.

The counterintuitive factor about this dynamic is that, with the US spring wheat harvest building, Minneapolis prices should be feeling pressure from increased supplies and the withdrawal of remaining risk premium.

'Signs of vomitoxin'

Still, early reports from the spring wheat harvest in North Dakota, the top growing state, do note, while good yields, some quality issues, stemming from weather which has been wet for much of the growing period.

"Early results indicate that much of the crop is a touch wet. Some vomitoxin is noted in the early samples," Brian Henry at Benson Quinn Commodities said, vomitoxin being a fungal residue that can render wheat unfit even for feed, and certainly for delivery against futures.

CHS Hedging said that "early reports of North Dakota spring wheat show signs of vomitoxin and scab," although this is from "just some test cuttings". 

"Spring wheat harvest will not start in earnest in North Dakota until next week or the week after."

Production fortunes

One factor going against Kansas City wheat has been a relatively strong finish to the US harvest, in both quality and yield terms, after a poor start in the South, where crops had been held back by drought during the growing season and rains at harvest time.

On Tuesday, the USDA raised its estimate for the crop by 26m bushels to 729m bushels.

The estimate for hard red spring wheat was raised by a modest 9m bushels to 529m bushels, and for soft red winter wheat by 8m bushels to 466m bushels.

Chicago soft red winter wheat maintained its outperformance on Thursday, adding 0.3% to $5.29 a bushel for September as of 08:20 UK time (02:20 Chicago time).

Kansas City wheat for September was unchanged at $6.04 a bushel, actually regaining a premium over its Minneapolis peer, which edged 0.3% lower to $6.03 a bushel.

'Forecasts of rain'

Elsewhere among grains, corn futures regained their downward focus, shedding 0.7% to $3.67 a bushel for December, shedding all of their, modest, gains after the US Department of Agriculture's surprisingly small upgrade in Tuesday's Wasde report to its estimate for the US yield.

CHS noted "forecasts of rain events for the Midwest this weekend and early next week.

"Could be the final drink the corn needs before maturity. The warmer temperatures this week should be helpful to corn development also."

There are expectations that the ProFarmer tour of the Midwest, to start on August 18, will show far bigger corn yield ideas.

'Not much passion'

Still, December corn does remain above contract lows set early in the month, with some ideas of improved demand and of a reluctance to press values too much further down for now when they are already below cost of production for many producers and seasonal lows are usually reached in the autumn.

"Corn has found a price it is willing to hold after the Wasde report, but still no rally expected with the record production," one US broker said.

Benson Quinn Commodities said: "While the buyers in the corn market haven't shown much passion, the same can be said for the sellers.

"Recent sellers are showing a little respect for the slightly better technical structure developing in the corn market."

'Nothing obviously bullish'

Soybeans extended losses, and set a new contract low of $10.38 a bushel for November, before recovering a little ground to stand at $10.40 a bushel, a decline of 0.6%.

The oilseed is suffering in particular from the withdrawal of risk premium as the important pod-setting period proceeds in the US without incident.

"There really is nothing obviously bullish to rally prices which means as time goes on more risk premium gets worked out," a US broker said.

"November soybeans have broken through the downside of the recent trading range and presumably will keep trending lower."

Yield upgrade ahead?

Benson Quinn Commodities highlighted the prospect of an upgrade to the estimate for the estimate for the 2013 US soybean crop, given the negative number for the so-called residual in the latest Wasde report.

"The negative residual implies an upward revision to the 2013 yield of near 1.2 bushels per acre to a record 44.6 bushels per acre," the broker said.

"If last August weather was hot and dry and US had a record soybean yield, the question floating around today is what is potential for this year's yield, with August so far cool and starting off with some moisture last week that looks to be followed up with more showers next week."

Some are thinking of a yield of more than 47.0 bushels per acre, above the 45.4 bushels per acre that the USDA is currently using.

'Still some weather risk'

Among soft commodities, December cotton extended its recovery in New York, adding 0.6% to 65.08 cents a pound, challenging its 20-day moving average.

"The bounce looks to be a combination of short covering and bargain hunting as there is still some weather risk in this year's crop production if we see wet conditions at harvest," said Sterling Smith, futures specialist at Citigroup.

That said, "any rally at this point will likely be unsustainable".

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