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Morning markets: data slew, and SA rains, weight on ags

Friday's Wasde report the US Department of Agriculture's flagship briefing on world crop supply and demand isn't the only data set that agricultural commodity investors have to factor in to their calculations.

Monday will bring the so-called "baseline forecasts", in which the USDA unveils its latest long-term crop estimates.

And later in the month, USDA officials will at an annual conference reveal forecasts for US crops this year estimates likely to show sharp improvements in production from 2012's drought-hit levels.

'Balance the threat'

This leaves ag markets "attempting to balance the threat of three potentially bearish USDA reports this month with admittedly tight old crop corn and soybean stocks that still have a massive old-crop rationing job ahead", Richard Feltes at RJ O'Brien, the Chicago-based broker, said.

Friday's Wasde report is expected to bring upgrades to estimates for US corn and wheat, if not soybean, inventories at the close of 2012-13, while the baseline forecasts are likely to see some chunky numbers for crop production potential before weather takes its tithe.

And as an extra risk, if these two reports do indeed prove bearish, Chinese buyers, big crop importers, will not be around, with the country celebrating the lunar new year.

"With China on holiday next week, we'll be absorbing the first two of those reports without any bottom picking by the world's largest soybean buyer," Mr Feltes said.

'Outlook has turned wetter'

Adding further wind to bears' sails was a turn wetter in the outlook for the Argentine forecast, as shown by both the main models, the European and GFS, which have often been in disagreement.

"Be advised that during the overnight hours, the GFS model has turned wetter in the six-to-10 day outlook over a significant portion of central, eastern and northern Argentina," weather service said.

"This is significant because the GFS does have some skill in the six-to-10 day timespan," for when it shows "significant rains over 70% of Santa Fe and Entre Rios, 60% of Cordoba and Buenos Aires, and 80% coverage over Santiago del Estero into Chaco and Formosa.

"In all of these areas the rainfall amounts range from one to three inches." added that "while there is still up quite a bit of uncertainty as to whether not these big rains are going to show up, the fact the European model has turned a little wetter increases the risk that some moderate or significant rains will reach some portion of central Argentina in the six-to-10 day period".

'Worrying signs'

Rains mean relief to corn and soybean crops which are being tested by dryness at a sensitive stage of their development, so tending towards larger crops, and undermining price support.

Indeed, Luke Mathews at Commonwealth Bank of Australia placed the idea that "Argentine weather is expected to improve later this month" as one of the "worrying signs for spot prices" for soybeans.

The others were that "crush margins are compressed, the Brazilian soybean harvest is gathering steam, and technical resistance", with Chicago's March lot facing the test of breaking through $15.00 a bushel if it is to add to its 2013 rally.

In fact, the contract succumbed to the weakness which has already taken root in grains, and fell 0.5% to $14.88 a bushel as of 09:20 UK time (03:20 Chicago time).

Corn drops

That was in fact nearly enough to keep up with the retreat in Chicago corn, which lost 0.6% to $7.25 a bushel for March delivery, pressed by the better South American weather and by ideas too that high prices have gone some way to tailoring demand to fit tight supplies.

More will be known later on demand from ethanol plants when the US unveils official weekly data on production of the biofuel, which last time remained close to its lowest level since records began in 2010.

Technically, the March contract has lost some of its appeal too, it falling back below 10-, 75- and 100-day moving averages, standing right back at its 20-day line.

Plains rains

Corn's decline allowed wheat to recover a little of its premium, in dropping a less steep 0.4% to $7.54 a bushel in Chicago for March delivery.

Wheat, for which South American weather is not currently of direct importance, is being pressed by talk of rain for drought-hit areas of the US Plains, where winter wheat seedlings are struggling.

Mark Welch at Texas A&M University said that "the precipitation forecast for the next seven days calls for better coverage of increased rainfall than we have seen the last several weeks - the Texas and Oklahoma panhandles, southwest Kansas, and southeast Colorado the exceptions".

Furthermore, there is some disappointment at the pace of US exports, if not from Dr Welch himself, who said that "in contrast to the corn market, wheat export sales are slightly ahead of pace to reach USDA's marketing year target.

While export sales for the latest week were, at 10.1m bushels, short of the required rate, "the average so far this year of 16.9m bushels is above the 16.1m-bushel weekly pace needed to reach the 1.05bn-bushel target", he said.

'Tepid demand'

Still, there are other ways of dissecting export data, factoring in seasonal factors, for example, or focusing on actual shipments, as measured by cargo inspections.

Brian Henry at Benson Quinn Commodities took a more downbeat interpretation.

"Despite the recent weakness in the wheat market, I can't find a reason to be friendly the market until we trade lower prices and/or the story becomes more supportive," he said.

"There may not be a lot of confidence in the benefits of next week's rain events in the southern Plains, but tepid demand for US wheat is offsetting the potentially bullish scenario that could develop in the hard red winter wheat crop."

'Could help to ease record stocks'

The negative mood filtered over to Kuala Lumpur too, where palm oil edged 0.3% lower to 2,540 ringgit a tonne, depressed by weakness in prices of oilseed peer soybeans.

However, the loss was limited by "hopes of better-than-expected inventory and export data next week", when the Malaysian Palm Oil Board unveils monthly data, Ker Chung Yang at Phillip Futures said.

He also flagged the potential for depressed soyoil output in Argentina, the top exporter, shifting "some demand to the cheaper palm oil.

"This could help to ease record stocks for the tropical oil."

However, whether prices rise for now well, on Tuesday Standard Chartered placed more faith in prospects of a rally later in 2013.

'Negative comments'

In New York, raw sugar for March extended its losses of the last session, falling 0.2% to 18.52 cents a pound, weighed by technical factors as well as talk coming from an industry conference in Dubai.

"Last week's short-covering rally appears to have run out of steam, with the consecutive failed attempts at the 50 day moving average, at about 20 cents a pound," CBA's Luke Mathews said.

"Most comments surfacing from the Kingsman sugar conference in Dubai are negative for sugar prices," with analysts surveyed foreseeing a drop in prices to 17.66 cents a pound.

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