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Morning markets: grains gain. Corn hit back against soy

The somewhat better sentiment which prevailed in grain markets late in the last session hung on into this one.

Even corn gained this time - helped by the better performance in soybeans and, latterly, wheat on Monday.

The performance of the oilseed was particularly notable, as its gains drove the much-watched ratio between new crop November soybeans: December corn ratio to 2.60:1 - a new high, and well above a low below 2.4:1 last week.

Prevent plant decisions

Why the strength in soybeans?

That is puzzling many investors, with the sowing delays in the northern US, after all, only adding to the chances of farmers switching from corn to soybeans, which can be later planted, only adding upward pressure to the already-record estimate for US seedings of the oilseed.

"The northern Plains is weighing options of switching corn acres over to beans, with the insurance planting date for corn fast approaching on May 25," Benson Quinn Commodities said, referring to the deadline when growers can claim for so-called prevent plant.

And, after all, the world is looking at record soybean inventories at the close of 2014-15, on the US Department of Agriculture's initial assessments.

'Uncharacteristically strong'

One broker, terming soybeans' performance "somewhat perplexing", said that "November soybeans are extremely high for this time of year - we usually don't see these prices unless there is some sort of weather scare".

The soybean:corn ratio "is uncharacteristically strong given the supply outlooks projected by the USDA".

One explanation for the high ratio could be technical with "traders getting squeezed out of that spread" now that it has passed contract highs.

"There are also a lot of natural sellers of December corn right now since the majority of it has been planted where soybeans doesn't have that yet," the broker said.

'Creeping back'

Still, there is also talk of a return of demand too, notably from China, the top importer of the oilseed.

"China is slowing creeping back into the market, with talk they bought upwards of seven cargoes of US new-crop beans late last week and are quietly shopping for summer South American beans as forward crush margins are now nominally in the black," Kim Rugel at Benson Quinn Commodities said.

Soybean prices in China itself have staged a recovery, helped by strong demand noted at an auction from government stocks last week, with the best traded January contract on the Dalian adding 1.1% to settle at 4,557 yuan a tonne, its best close in nearly 10 months.

The contract is now up 6.4% in six sessions.

Record tight stocks?

Meanwhile, back in Chicago, old crop soybeans are doing their bit, helped by continued demand, with US exports continuing at a pace stronger than investors had expected.

Indeed, there is one market estimate that US soybean stocks could fall to 100m bushels at the close of 2013-14, below the 130m bushels estimated by the USDA, and which would represent by a margin the tightest inventories on record compared with use.

(It should also be noted that there is talk too that last year's harvest was bigger than the USDA has reported, with Jefferies Bache, for instance, flagging the potential "understatement of the 2013 crop".)

On Tuesday, old crop July soybeans added 0.3% to $14.90 a bushel as of 09:30 UK time (03:30 Chicago time), firmly back above major moving averages bar the 40-day line.

The new crop November lot gained 0.4% to $12.44 a bushel.

'Acreage shifted away from corn'

It has to be said that November soybeans actually gave back a little ground against December corn, which added 0.8% to $4.79 a bushel, taking the soybean:corn ratio back just below 2.60:1.

US corn sowings last week, while rising 14 points to 73% completion according to overnight USDA data, were a little lower than the market has been factoring in on Monday.

"Corn traded lower all day pressured by the expectation that planting progress will exceed 75%," CHS Hedging noted.

While Corn Belt seedings are well on track, growers in the northern Midwest are struggling and, although weather is improving, the ideal sowing window has passed and prevent plant insurance dates are approaching.

"With rains through the weekend in the northern Plains likely pushing many producers up against their insurance dates, expect to see some acreage shifted away from corn," Benson Quinn Commodities said.

'Premature price fall'

At the University of Illinois, Professor Darrel Good said that "there should be some concern about crop progress and yield prospects in northern growing areas".

Indeed, the recent drop in corn prices "seems to be a little premature given the strong pace of consumption and production uncertainty", with the crop yet to be made.

As further solace for farmers, the sharp drop in December corn futures over the last two weeks has taken them "within $0.15 a bushel of the spring projected price for crop revenue insurance, limiting further downside risk for the 2014 crop for those with high levels of revenue insurance coverage".

Old crop July corn gained 0.7 to $4.80 a bushel, staying above its 100-day moving average.

Wheat challenges

The overnight USDA crop progress data showed delays in spring wheat sowings too thanks to the northern Plains wetness, with plantings 49% complete, 19 points behind the average.

Farmers in North Dakota and Minnesota were well behind the pace.

As for winter wheat, it continued to deteriorate, with the proportion rated "good" or "excellent" sinking 1 point to 29%, the lowest for the time of year since 1996.

Again, it was southern Plains hard red winter wheat which deteriorated. Just 5% of the Oklahoma crop was rated "good" or "excellent", down 1 point on the week.

'Worth keeping an eye on'

The extent of the decline has raised doubts over how much good rains expected this week will actually do.

Furthermore, there is a growing focus on dryness in Russia, which has a history of periodic droughts, causing market rallies, although it has to be stressed that the current lack of rainfall is currently far from serious.

"As temperatures in the Black Sea region warm, there will be some attention paid to a few areas in the Black Sea region that have been trending drier," said Benson Quinn Commodities.

"It's worth keeping an eye on."

Wheat for July, having on Monday closed higher for the first time in nine sessions, rebounded 1.5% to $6.84 a bushel for July delivery.

Kansas City hard red winter wheat for July was up 1.6% at $7.81 a bushel, and Minneapolis hard red spring wheat for July up 1.5% at $7.50 a bushel.

Cotton recovers

Among soft commodities, cotton gained ground too, helped by its fellow row crops, despite an improvement in the US planting pace.

US growers had sown 46% of cotton as of Sunday, up 16 points week on week, and nearly catching up with the average of 48%.

Still, an acceleration in sowings in Texas, the top US cotton growing state, by 12 points to 36% complete may be being fuelled somewhat by hope of rains, rather than by an improvement in actual planting conditions.

"Cotton planting continued across the Panhandle and southern Plains, though some growers were awaiting rainfall before planting dry land cotton acres," USDA scouts in Texas said.

"Irrigated row crops were suffering in some areas as producers were forced to stretch limited water supplies."

Cotton for July gained 0.5% to 89.59 cents a pound in New York.

Palm sinks

But, back among oilseeds, Kuala Lumpur palm oil traded lower, down 0.8% at 2,517 ringgit a tonne, in part on technical softness, after in the last session closing below its 100-day moving average, on a continuous chart, for the first time in seven months.

Sure, Malaysian export data from cargo surveyors came in strong, rising 19.1% month on month so far in May, according to SHS, with Intertek seeing the increase at 18.5%.

But that was some deceleration from the pace earlier this month.

And the Malaysian Palm Oil Association growers' group downplayed ideas of damage to Malaysian  palm production, this year, from an El Nino weather pattern, which typically causes dryness in South East Asia.

The association forecast a small rise, to 19.4m tonnes, in Malaysian output this year, from 19.22m tonnes in 2013.

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