Are oats really a decent leading indicator?

"Oats knows" is one of those Chicago trading sayings, meaning that the grain blazes the trail where others follow.

And the grain has continued to record higher closes this week, even as the main corn, soybean and wheat contracts have faltered.

But while oats themselves continued to score gains on Friday, adding 09% rise to $3.64 a bushel as of 09:00 UK time (03:00 Chicago time) for March, and climbing back of their 50-day moving average, the big crops struggled to keep up.

 'Data is improving'

There were actually some other reasons for grains and oilseeds to post some gains.

External market conditions were good, after Thursday's decent Chinese purchasing managers' index data on the factory sector, while the US put out some well-received unemployment claimant statistics.

"Data is improving in Europe and the US and most importantly also from China, such as we saw in the steady improvement in the HSBC flash PMI yesterday," said Nick Trevethan, strategist at ANZ in Singapore.

Tokyo shares soared 2,9% overnight close to two-year highs, while Sydney stocks added 0.5%, while among commodities, London copper opened firm.

That safe haven of the dollar gave an extra fillip to dollar-denominated assets, including many commodities, by easing 0.2%, so making them more appealing to buyers in other currencies.

Rains overstated?

Furthermore, on a more fundamental note, the ideas of needed rain for southern Brazil and Argentina may be being overplayed.

One reason behind selling pressure in the last session was the idea that rains in northern Brazil would spread to the south early in February.

And, in the 11-to-15 day outlook, the GFS model does "show numerous showers and thunderstorms over all of south east Brazil, covering Rio Grande do Sul, Santa Caterina Parana and Sao Paulo with numerous showers and thunderstorms", WxRisk.com said.

Some 60% of that area should receive 0.75-1.5 inches of rain.

'May be bogus'

"However the GFS ensemble does not support this and keeps all the rain out of south eastern Brazil, and this is also the case for the European [model] extended forecast," WxRisk.com said.

"What this means is that the potential for seeing significant rain over south east Brazil in the 11-15 day outlook which has been driving the market may be bogus.

"That rain may end up being a lot weaker or not even show up."

Fund selling over?

Traders also flagged the late revival in prices in the last session which drove corn back into positive territory in the close, and pared losses in soybeans and wheat.

"All three markets managed to recover to price levels near their 20-day moving averages which, combined with old crop corn rejecting lower trade and soybeans recovering well off their lows, could be a sign that the recent spate of fund selling is coming to completion," said Brian Henry at Benson Quinn Commodities.

"March corn, closing back above the 50-day moving average, should offer technical support."

Data later

Still, if that was reason enough to put a brake on crops' slide, it was not enough to inspire new buying in a market awaiting evidence of how the latest round of price rises have affected demand.

Ethanol data on Thursday showed some pick-up in US output, and therefore corn use, but not enough to demonstrate that plants are about to return to running full steam ahead.

Ethanol production margins are still believed to be negative, if less so, with estimates that up to 20% of US capacity may be idled for now.

More input will be seen later on Friday when the US Department of Agriculture releases weekly export sales data expected to show the soybean number at 750,000-950,000 tonnes, around half levels the week before, and corn's at 200,000-450,000 tonnes, in line with last time.

Wheat export sales were expected at 350,000-550,000 tonnes, a little below the previous week's 575,000 tonnes.

Options expiry

For now, Chicago corn for March eased 0.1% to $7.22 ¼ a bushel, although a major move is not expected.

"February options contracts expire on Friday and the concentration of open interest near the $7.20-a-bushel level is suggestive that the market should not stray too far from that level in tomorrow's trade," Mr Henry said.

Soybeans eased 0.1% to $14.33 ¾ a bushel for March.

'Wheat is trading pathetically'

Wheat fared worst, again, dropping 0.3% to $7.66 ¼ a bushel, amid continued ideas that it is becoming the brunt of sell wheat, long soybean/corn bets.

"Wheat is trading pathetically. It needs export business to bring buyers back in," Mike Mawdsley at Market 1 said.

Its decline defied continued concern over dryness afflicting the US winter crop, as highlighted by US Wheat Associates.

In Kansas, "sub-soil moisture is as dry as it has been in 60 years," the group said, adding that "the prime wheat production area of northern and western Oklahoma is also in exceptional to extreme drought".

Furthermore, "the forecast does not look promising for spring wheat growers in North Dakota, Minnesota and Montana where dry conditions to the east and south settled in this winter".