Many investors were predicting something of an early-2013 comeback in grain and soybean prices, even as values hit a succession of six-month lows late last year and earlier this month.

The likes of Goldman Sachs and Morgan Stanley, in essence, cautioned that higher values were needed to ration demand, and to incentivise huge sowings this year, even before Friday's US Department of Agriculture data which signalled a surprisingly high level of domestic corn and wheat use.

And the rebound in prices bedded in further on Wednesday, amid ideas that the fund liquidation evident in the late-2012 correction may indeed have hit the buffers.

Richard Feltes at RJ O'Brien - highlighting recent outperformance of grains over the CRB commodities index, and "some evidence" of fund buying in the last session - said that this signalled a "possible end to the steady fund liquidation that has prevailed since the mid-August peak in managed fund grain longs".

'Stay dry'

And there has indeed been some turn in the tide of fundamental news, above the USDA data.

Concerns are rising over drier South American weather, for southern Brazil and much of Argentina, grabbing headlines (even if conditions look more of a threat for corn than soybeans, according to respected crop scout Michael Cordonnier).

Models suggest that "Argentina, south east Brazil stay dry for the next 10 days", said weather service WxRisk.com, even if the key central Brazilian soybean districts will "see heavy rains".

The world is relying on healthy South American crops to refill silos depleted by drought-hit harvests there, and in the US, last year.

'Cold air mass'

Indeed, the US drought is re-emerging as an issue, especially for winter wheat, with the Plains trapped in another dry spell, and with cold weather approaching which may pose a risk to any crops without a snow blanket.

"A stronger and much larger and colder air mass will begin to drop southward from Canada into the central and upper Plains and all the Midwest starting on January 20," WxRisk.com said.

"This air mass will bring temperatures to it least -20 degrees Fahrenheit in many areas of the upper Plains on the morning of January 21, 22 and 23."

"Cold in US wheat country, tighter supplies for wheat and corn than thought, and now talk of a dry spell in Argentina are perking the bulls ears," Mike Mawdsley at Market 1 said.

'Most bullish among grains'

OK, some interpretations of the news were more cautious on prices.

"It is still too early to assess the real impact of the water deficit on the production," Paris-based Agritel said.

Joyce Liu at Phillip Futures said: "Forecasts of sustained dry weather have raised fears that that more damage could be brought onto the US winter wheat crop.

"However, we reiterate that bad weather conditions during dormancy stage may not necessarily translate to reduced yields and increased abandonment, according to historical instances."

Even so, she forecast that without any alleviation in dryness before winter wheat breaks dormancy - a possibility that was "likely to reverse damages and exert pressure on prices" - wheat was "likely to remain the most bullish among grains and may test $8.00-a-bushel levels this week or next".

'Trend has changed?'

Chicago's spot March contract was still a little way off that in early deals on Wednesday, standing at $7.88 a bushel at 09:30 UK time (03:30 Chicago time).

Still, that was a 0.7% rise on the day, with investors being encouraged too by technical factors, with the contract closing the last session above its 20-day moving average for the first time since November,

"Three days of solidly closing higher suggest the trend has changed. Buy breaks until the market proves you wrong," Market 1's Mike Mawdsley advised.

Chicago corn for March set course for an eighth successive positive close, attempting to extend a run which took it back though its 20-day line last week, and in the last session to a finish back above the 50-day moving average for the first time since early December.

The March lot added 0.4% to $7.33 ¾ a bushel.

'Little bit of everything'

Soybeans, which emerged relatively bearishly from Friday's USDA data, also have the most equivocal technical signals, with Chicago's March lot closing back above it 20-day moving average on Monday, but failing in the last session to secure a foothold above the 50-day.

"The weakness that continued to develop over the course of the last session gives plenty of reason for speculative length to continue to take profits on long positions," Brian Henry at Benson Quinn Commodities said, underlining a "murky picture going forward" for soybeans.

"The technical structure of the market is offering a little bit of everything. Daily momentum studies continue to point to higher prices, but the failure at the 50-day moving average is a sign that the market is losing strength."

"I expect traders holding profitable long positions to be quick to take profits on signs of further weakness."

'Basis levels weakened considerably'

And there are some fundamental concerns too, with the US not announcing fresh sales of the oilseed to China on Tuesday, as some investors had hoped following rumours of buyers in town.

"I don't doubt that the Chinese have been shopping the US and South America, but I am seeing more signs that they don't have to chase offers," Mr Henry said.

"Rail basis levels in the northern US Plains weakened considerably, which is a sign that the window to trade February shipment slots is fading."

Still, helped by grains and South America weather concerns, Chicago's March soybean lot added 0.6% to $14.20 ¾ a bushel.

'Fundamental picture still bearish'

Some soft commodities managed a better performance in early deals on Wednesday too, despite a broader risk-off attitude afoot, which lifted the safe haven of the dollar a touch and sent shares lower. London stocks dropped 0.7% in early deals.

New York raw sugar for March rose 0.4% to 18.70 cents a pound, reversing some of the declines of the last session.

"Raw sugar futures may witness some short-covering today," Phillip Futures Ms Liu said.

"The overall fundamental picture is still bearish, at least until any favourable ethanol policy changes take place in Brazil.

"But the market has gone temporarily too far into bearish territory with large amount of shorts."

New York cotton for March extended its recent recovery, adding 0.3% to 76.46 cents a pound, helped by Friday's USDA downgrade to its estimate for US stocks at the close of 2012-13, and by corn and soybeans, with which the fibre will compete for acreage in the US sowing season.