Are grain investors already anticipating an important report on March 28?

Futures, which proved reluctant to remain too far from opening levels in the last session, remained somewhat becalmed in this one too, apparently awaiting fresh direction from two obvious sources.

Drought talk

The first is the US weather, which has provided enough rainfall to erode drought, but not eliminate it, as farmers gear up for spring sowings.

The latest official US drought monitor, for instance, shows only 16% of Illinois in drought, a figure better than at the start of the year, but 100% of Iowa, the top corn and soybean growing state, besides of Kansas and Nebraska too (as of March 5).

Iowa State University agricultural meteorological specialist Elwynn Taylor has warned that droughts are rarely one-year affairs, typically taking some time to recharge soil moisture levels.

(Sited in England, where the wettest year on record followed an unusually dry year, Agrimoney.com can attest that, here at least, farmers should be careful what they wish for.)

Meanwhile, in the south east, where sowings have already started, "some are starting to talk about the wet conditions. Plantings in those areas are falling behind normal," Mike Mawdsley at broker Market 1 said.

Key report

If the weather outlook is about supply, the other factor bleeping large on traders' radar, now that uncertainty over South American crops has diminished, is that of a key US Department of Agriculture report at the end of the month.

The US Department of Agriculture will on March 28 unveil its quarterly grain stocks report, which offers investors one of the few real insights into how much grain, and of which varieties, is ending up in animal's digestive systems.

While factors such as crop exports, the soybean crush (monthly industry data due tomorrow), corn use in ethanol, can be gauged from weekly data, there are fewer pointers to use in livestock rations, with data on animal numbers and slaughter rates used as proxies.

The next report looks particularly, to validate the USDA's upgrade last week to its estimate for US use of corn in feed, but also to assess the degree to which wheat, given its relatively low price, is replacing corn.

'Switching from corn to wheat'

"Farmers are increasingly switching to wheat in replacement of corn for feedstock after wheat traded at a discount to corn for more than two weeks," Joyce Liu at Phillip Futures said.

"Even ethanol producers are said to be switching from corn to wheat," although the extent to which this substitution can occur is reckoned by some analysts to be small.

At Benson Quinn Commodities, Brian Henry said there was "constant chatter" about soft red winter wheat, the type traded in Chicago, being traded into feedlots in the southern Plains.

"The values work, if you can handle the wheat and have room to increase the percentage of wheat in the ration."

'Caution flags'

Talk of hog producers who failed to hedge their positions being landed with losses of $31 a head, prompting them to feed to lighter weights, raised alerts for Richard Feltes at RJ O'Brien, saying that it  "could negatively impact corn feed use in the final six months of the 2012-13 marketing year".

"Taken together, higher domestic wheat feeding and feeding hogs to lower weights are caution flags for corn bulls in ramp up to March 28 quarterly corn stocks report," he said.

There were some other reasons for grain bulls to be cautious too, such as a rare sale of corn to China by India.

Admittedly, it was only a test deal, of 13,700 tonnes, but represents another sign of India's growing presence on grain export markets, as it attempts to erode huge stocks, of wheat especially, formed by generous state buying programmes.

India has also opened talks attempting to gain access to wheat tenders by Egypt, the top importer of the grain.

'More soybeans available for export'

Still, "I would expect futures to trade in their current trading range until we see what the stocks report says in two weeks," Market 1's Mike Mawdsley said.

Which was certainly true of early deals, when May wheat was unchanged at $7.10 a bushel in Chicago, as of 09:40 UK time (04:30 Chicago time), losing ground again against corn, which gained 0.3% to $7.12 a bushel.

Soybeans again lagged, down 0.5% at $14.40 ¼ a bushel for May delivery.

But then it is being hurt by rumours of Brazil may eliminate a tax credit on soyoil.

"Elimination of the subsidy would lower crush margins in much the manner that the expiration of the US ethanol blender credit depressed US ethanol margins for the majority of 2012," John Petrie at Zaner Group said.

The ditching of the credit, and the subsequent cutback in the crush, may "provide just that many more soybeans available for export", so increasing competition against US supplies.

China dynamics

Soybeans also face the persistent concerns over the dearth of Chinese orders of US soybeans late, at least as measured through the USDA's daily alerts system, which covers large deals.

"There are rumblings that China may be looking to cancel some purchases as they overbooked March," Kim Rugel at Benson Quinn Commodities said.

However, Luke Mathews at Commonwealth Bank of Australia said: "At the same time, we have heard rumours that China will walk away from two to three cargoes of Brazilian soybeans because of logistics issues, and switch to US supplies instead.

"If true, this will be supportive for US soybean prices," it not so much in early deals.

Data later

Soybean futures in China itself showed a more resilient performance, adding 1 yuan to 4,716 yuan a tonne on the Dalian exchange, for September delivery, although soyoil fell 0.7% to 8,008 yuan a tonne, and soymeal tumbled 1.9% to 3,273 yuan a tonne – dynamics which would point to waning crush margins

Palm oil took further fright at the weakness in its rival vegetable oil from a major importing margins, and fell 1.3% to 2,365 ringgit a tonne in afternoon deals in Kuala Lumpur.

Turning back to Chicago, price movements later on may be largely determined by weekly US export sales data, expected at 700,000-1.1m tonnes for soybeans, down from 1.38m tonnes last time.

For wheat, lower export sales are also expected, at 500,000-800,000 tonnes, down from 828,000 tonnes, but corn's are seen improving to 200,000-500,000 tonnes, from 157,000 tonnes.

Cotton gains again

Among soft commodities, New York cotton extended its winning run, adding 0.5% to 89.04 cents a pound for May.

"Tonight's weekly US export sales report will be the focus of the market - anticipation for another strong result is high," CBA's Luke Mathews said.

However, raw sugar for May was static at 18.80 cents a pound, amid growing hopes for a decent 2013 cane crop adding to the world's supply hopes.

"Local forecasters have indicated that India should receive a normal monsoon in 2013, an improvement from the weak result in 2012, thereby supporting production of sugar," Mr Mathews said.