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Morning markets: grains make cautious headway. But palm dips

Here's a cheery adage to start the day.

"Markets always look low half way down."

Richard Feltes at Chicago broker RJ O'Brien flourished it as a caution to investors expecting the corn and wheat rally to stabilise or reverse.

He had some other advice for investors too: "Beware of markets that are unable to react to positive news," a reference to the negative closes on grain and oilseed markets in the last session despite some apparently upbeat news, in terms of a hotter tone to weather in the Midwest, besides continuing US export action, this time for soymeal.

'Heading for the exits'

The problem, for bulls, may be that hedge funds still retain some scope for selling down soybean, wheat and, especially, corn futures and options before troubling historical highs.

"Trade action suggests that the remaining managed fund longs are heading for the exits," Mr Feltes said.

Reasons for investor caution include the "third highest mid-July US soybean rating in history, strong correlation between cool summers and high corn yields, and largely favourable growing conditions across the balance of the northern hemisphere".

Tour results

And the news of bumper US yield potential just keeps coming in.

"Fantastic crop ratings are now being complemented by reports from field tours," Brian Henry at Benson Quinn Commodities said.

The Doane crop tour of the Midwest revealed the best Illinois soybean potential in the event's history, and an estimated corn yield for the state of 193 bushels per acre, up from 182 bushels per acre on last year's tour, with Iowa potential pegged at up to 200 bushels per acre.

For wheat, the Wheat Quality Council tour of North Dakota on Tuesday, its first day, came up with some strong results for spring wheat in the south of top producing state.

The yield was estimated at 48.3 bushels per acre, up 5.0 bushels per acre from last year's tour finding for the region, and a five-year average of 42.9 bushels per acre.

'Bearish tilt'

For wheat, "global news continues to have a bearish tilt with harvest progress in Russia showing yields above expectations," Mr Henry added.

For soybeans, Oil World has added bearish pressure by lifting its forecast for world production of the oilseed by 3.7m tonnes to 305.6m tonnes, a touch above the US Department of Agriculture estimate of 304.8m tonnes.

Oil World's revision included a 2.5m-tonne upgrade to 101.0m tonnes in this year's US crop, although that remains below the USDA forecast of 103.4m tonnes.

Oil World was more upbeat on Argentine prospects, estimated at 56.0m tonnes, an upgrade of 2.0m tonnes.

Monsoon latest

That said, the analysis group did trim, by 800,000 tonnes to 88.4m tonnes, its forecast for world stocks of the oilseed at the close of 2014-15, although that remains above the 70.9m tonnes at the end of this season, on its estimates, and the USDA forecast of 85.3m tonnes.

And all is still not well in India either.

CHS Hedging noted that "monsoon rains have improved over the last few weeks.

"While they are still short of historic expectations, it's a vast improvement from where things were."

However, water levels in the country's 85 main reservoirs are at 26% of full capacity, down from 42% a year ago, prompting the head of the state-run Central Water Commission to warn that "reservoir levels much start going up from now on, otherwise the winter crop will suffer".

Price moves

In Chicago, grain futures slowed their decline, but were reluctant to reverse it too much, with soybeans for November standing 0.2% higher at $10.60 a bushel as of 09:15 UK time (03:15 Chicago time).

Corn for December added 0.1% to $3.68 a bushel.

Wheat for September was up 0.25 cents at $5.24 a bushel, with the solid demand news of yet another tender by Egypt's Gasc grain authority, its third this month, offset by ideas that US supplies will not come into the running when Russian and Ukraine sellers are keen to get more orders under their belts and have a big freight advantage.

A USDA report overnight noted "good results" from the Ukraine harvest so far, in yield terms, bit did acknowledge "some negative affects" from late rains in central and western areas.

Prices began the last session firm, of course, only to end lower.

Palm falls

Elsewhere, in Kuala Lumpur, palm oil extended its decline, falling 1.1% to 2,254 ringgit a tonne, an 11-month low for a benchmark contract.

Prices have been undermined by expectations for a strong world oilseeds harvest, besides by a stronger ringgit, which has sapped the competitiveness of Malaysian exports, such as palm oil.

The ringgit on Wednesday stood at 3.1675 to $1, close to an eight-month high.

Indeed, the Malaysian Palm Oil Board said that Malaysia exported 8.1m tonnes of palm oil in the first half of the year, down from 8.1m tonnes in the first half of 2013.

Meanwhile, Malaysian production is believed to have been strong, with the Malaysian Palm Oil Association producers' group seeing it up 16.3% month on month up in the first 20 days of July.

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