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Morning markets: grains revive after post-Wasde drubbing

The tumble in grain prices showed signs of having passed over, at least for now.

Not that there was much but downbeat talk around, after Friday's US Department of Agriculture Wasde crop report, which raised both US and world stocks estimates for corn, soybeans and wheat.

Nor was the US weather outlook anything but benign.

For the Midwest, "crop conditions should be generally favourable through the next 10 days as cool temperatures remain in place," weather service MDA said.

Looking ahead, "the 6-10 day outlook is wetter throughout the Midwest corn/soybean belt and slightly warmer versus Friday's outlook".

Chinese prices

But markets have lost so much that they are deeply oversold, favouring the prospect of at least a holiday from selling for a while.

There were signs of demand around on Monday, with Israeli groups tendering for 108,000 tonnes of corn and 50,000 tonnes of feed wheat, optional origin.

And it has to be said that the reaction on China's Dalian market to the latest lurch downward in Chicago futures prices, in the last session, was muted.

Corn for January closed today lower by a modest 6 yuan a tonne at 2,303 yuan a tonne.

Soybeans - for which Chinese prices are particularly closely watched, given that it is the biggest importer – also lost 6 yuan a tonne to end at 4,315 yuan a tonne.

Hedge fund positioning

As Macquarie reminded on Friday, prices cannot go down for ever, as the bank said that fair value analysis indicated a cash corn price of $3.75 a bushel in Illinois, implying futures trading at $3.75-4.00 a bushel.

Corn actually looked intent on testing the lower side of that range, shedding a further 0.4% to a fresh contract low of $3.83 ¼ a bushel for December delivery as of 10:00 UK time (04:00 Chicago time).

That grain was little helped by separate data released late on Friday showing that hedge funds actually raised their net long positon in corn futures and options in the week to July 8, implying more potential for further selling that had been thought.

The net long returned over 200,000 lots, contrasting the net short of 180,000 contracts held in October last year, and implying some headroom yet for liquidation.

Price gains

Still, for soybeans, hedge funds came within an ace of a rare net short position in the oilseed, cutting their net long position by more than 20,000 contracts, taking the total selldown over the past six weeks above 100,000 contracts.

Soybean futures for November gained 0.4% to $10.78 ¾ a bushel, with the potential for minimal second-crop sowings (planted after winter wheat) in the US, thanks to market weakness, adding some extra support.

Wheat for September gained 0.4% t $5.28 a bushel in Chicago, with hedge funds already holding a net short of more than 44,000 contracts, within range of the record levels above 70,000 reached earlier this year.

'Trend is your friend'

Not, it has to be said, that there is much bullish talk out there, nor apparent expectation of a price recovery entrenching.

Is the cacophony of bearish comment such that it may represent a contrary, and price positive, indicator, short-term?

"Bearish. There is no other way to describe current weather, current fundamentals, and the outlook for world supplies of grain," said Mike Mawdsley at Market 1, proving particularly downbeat over soybean prospects.

"They have been in their own world so long, they are finally joining the rest of the grains.

"Potential carryout and world supplies would suggest lower prices than current levels… The trend is your friend."

'Bearish issues unresolved'

At Citigroup, Sterling Smith noted that corn, which in the Wasde saw upgrades to inventory estimates for both 2013-14 and 2014-15, may see more.

"Feed numbers were reduced slightly for both old and new crop and while we have no issue with the concept we do expect further reductions," he said.

"The report left two key bearish issues unresolved as yields can be moved higher and the feed usage can be decreased."

The Wasde surprised many commentators by failing to lift the forecast for the US corn yield above the existing, record, estimate of 165.3 bushels per acre.

'An anomaly?'

At RJ O'Brien, Richard Feltes said that "traders are pondering whether the prior eight years of high prices, spawned by an ethanol boom, emerging market growth and above-average crop failures, was an anomaly".


US and global grain oilseed stocks are accumulating enough "to force board carries and more relaxed end-user buying behaviour.

"Traders that made money in bull markets are advised to dust off strategies that paid the bills in bear markets."

More downbeat cocoa datsa

Among soft commodities, cotton followed its fellow row crops higher, adding 0.5% to 68.47 cents a pound for December delivery.

Not that all commentators are too bullish here either, with the Wasde raising further the estimate for record world stocks at the end of 2014-15, prompting Dr John Robinson at Texas A&M University to cut to 65-77 cents a pound, from 72-82 cents a pound, his forecast for New York prices.

Arabica coffee added 0.4% to 162.05 cents a pound for September delivery, helped by data showing a 51% slump, year on year, to 50,093 bags in exports from El Salvador last month, a drop reflecting the impact of roya fungus on the country's production.

But cocoa fell 0.3% to £1,919 a tonne in London, undermined by data showing a 9.9% drop to 65.046 tonnes in Malaysian grindings in the April-to-June quarter.

Cocoa bulls have been hoping for strong data out of Asia to offset weakness in European processing data, revealed last week.

Still, with Malaysia a fading power in the region, losing out to Indonesia, the impact of the data was moderated.

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