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Morning markets: demand ideas help grains to price gains

Grains started the week on the front foot, for a change, amid ideas that values may have fallen enough for now to account for huge US, and world, harvests.

It is not that the US crop picture has deteriorated, remaining pretty near ideal.

MDA said that weekend US Midwest rainfall was "near expectations", while in the outlook saying that "cool temperatures will support soybean growth and late corn pollination".

The centre of what concerns there remains the south west of the Midwest, where "moisture will decline".

Speculators' positions

However, there are a few factors to make investors think twice about extending short positions one being the extent they have put in already.

Data late on Friday showed hedge funds cutting to 70,000 contracts their net long in Chicago corn futures and options, down from more than 260,000 lots in early May.

In Chicago wheat, they extended their net short close to 55,000 contracts, getting back close to the peak net short of 73,000 lots reached six months ago.

In soybeans, they lifted their net short above 18,000 contracts, the highest for the oilseed since 2006.

Extreme net short or net long positions raise questions over the appetite for speculators for raising such bets further.

'We have seen business pick-up'

Besides, there are growing signs of demand at these levels, with last week bringing a spate of announcements by the US of large export sales orders.

Friday, for instance, brought export sales of 269,084 tonnes of corn to Mexico, which bought 134,700 tonnes of soymeal too, plus 360,000 tonnes of soybeans sold to China.

"We have seen business pick-up at these price levels," Mike Mawdsley at broker Market 1 said, if cautioning that a rally may have trouble finding legs unless supported by revived production concerns too.

'Panic growing'

Still, those are growing in wheat, in terms of European Union production, and the increasing concerns over rain damage to crops in some countries such as Romania, a big supplier to Egypt, and France, the bloc's top producer and exporter of the grain.

Jean-Xavier Mullie, the chief executive of French grain co-operative Agora, wrote that "panic in the market is growing" over the extent of quality downgrades to the country's wheat from late rainfall.

One major concern is the Hagberg falling number, a key quality measure, which is below the typical 220 for most of the crop.

Major North African markets such as Morocco and Algeria demand a figure of at least 230.

"Most wheat in France is running between 180 and 200 falling numbers," CHS Hedging said.

Chart factors

Technical factors are also offering some deterrent to sellers, with grains widely deemed to have been oversold, and with many contract moving back above some of their moving averages.

December corn, for instance, touched its 10-day moving average, at $3.76 bushel, for only the second time this month before easing back to $3.75 a bushel as of 09:20 UK time (03:20 Chicago time), up 1.1% on the day.

November soybeans gapped higher with its low so far today, of $10.90 a bushel, above the high of the last session of $10.87 a bushel and the kind of factor to excite chartists, especially if the gap is not filled later in the day.

The contract, at the other end of today's trading range, came 0.25 cents from regaining $11.00 a bushel, before easing back to $10.96 a bushel, up 1.2% on the day.

Wheat lagged a bit, adding 0.4% to $5.40 a bushel in Chicago for September delivery, and by 0.4% to $6.33 a bushel in Kansas City for September.

But then, fundamentals are not going all its way, with analysis Ikar upgrading, again, its forecast for the Russian wheat harvest, this time by 1.2m tonnes to 57.5m tonnes.

'A little less bearish'

Among soft commodities, cotton got off to a decent start, adding 0.6% to 65.77 cents a pound in New York for December delivery recovering from the contract low set in the last session.

Friday's low was also the lowest for cotton, on a nearest-but-one-contract basis, since October 2009, raising hopes for demand here too.

One reason for hope for cotton bulls is that the December contract is now comfortably below future lots, John Robinson, cotton marketing specialist at Texas A&M University, said.

"While the forward spreads don't cover the cost of storing cotton, at least it is a move back towards normal economic relationships," Dr Robinson said.

"And that move suggests things might be a little less bearish for the future."

PM markets: wheat leads grain revival. But cotton flops anew
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