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Morning markets: grains see measured descent. Cotton less so

There is plenty of bearish talk around on grain prices, after Monday's surprise US data.

These showed larger-than-expected US stocks of corn and soybeans, and above-expectation sowings of wheat and, particularly, soybeans too.

"With the acres and weather, some in the trade feel corn will have a $3 in front of it before long," said CHS Hedging.

Corn has not traded below $4.00 a bushel for nigh on four years on a front contract basis.

'Price trend is lower'

For soybeans, Benson Quinn Commodities said that the "price trend is lower, with harvest lows seen nearer the $10-a-bushel level than current prices".

And other commentators were even more downbeat.

"If we avoid any issues with the weather in August, sub-$10.00-a-bushel soybeans are a very real possibility," said Citigroup's Sterling Smith.

For soybeans, their last visit below $10 a bushel was in August 2010.


Still, prices did not seem in that much of a hurry to get there.

Sure, a rule of thumb dictates that shifts in pricing tectonics usually go in three-day trends.

"The aftershocks of a report this large can last a few days which means we could see another weak day from liquidation on Wednesday," one US broker said.

"The managed money doesn't usually change their positions overnight, they build and liquidate positions over time."

Post-holiday rally?

However, there are some other trader guidelines too, such as new months bringing in new money, or of long weekends provoking profit-taking, with the prospect of an extra day without being able to trade encouraging investors to cash in.

This at a time of year when changes of weather forecasts can wreak a big impact on market sentiment.

And this week is indeed foreshortened, by Friday's July 4 US independence day holiday.

And holiday periods themselves often prove marker posts for changes in sentiment.

Mike Mawdsley at broker Market 1 said that "markets are down sharply into the fourth of July thus a post-holiday rally is possible.

"We could see some type of turnaround after the fourth of July weekend."

Chart support

But many investors were not even waiting to get that far, allowing futures to avoid setting fresh multi-month lows, if not to go as far as actually recovering, although soybeans managed that.

There were some other reasons too to question whether bears have everything in their favour.

"Technically, the market is still oversold and due for a correction," CHS Hedging said, thinking in particular of corn.

For soybeans, Mr Mawdsley noted that the best-traded November contract had hit its 76% retracement point, a key level for followers of Fibonacci analysis.

"Nothing says that has to stop the November contract sell-off, but it is a target for shorts to cover and take quick profits," he said.

'Quality issues a real problem'

For wheat, there is the issue of rains delaying the US winter wheat harvest and threatening the quality of the crop moisture and ripe kernels are not an ideal mixture.

"So far, the soft red winter wheat harvest has been slow and quality issues remain a real problem," said Brian Henry at Benson Quinn Commodities.

"It appears a large portion of the crop will have to find a way into the feed ration over the next few years or be blended very slowly over the course of many more years."

Soft red winter wheat makes the grade for lower-protein milling uses, such as making biscuits, if it is not directed to feed mills.

Argentine hold-out, again

There are some concerns over quality in some other areas too, such as eastern European Union, including Romania, a country which, while a relatively small producer, packs a big punch in exports, being the top supplier in 2013-14 to the grain authority in Egypt, the world's top wheat importing country.

Some parts of Ukraine have had rains on advanced crops too.

Meanwhile, back on soybeans, there is talk of Argentine farmers renewing stockpiling if the government is unable to reach agreement with holders of its sovereign bonds and avoid a default.

That would be likely to accelerate weakness in the peso, and stoke inflation, making dollar-denominated assets such as crops ever-more-valuable.

Price moves

This all fed through into an atmosphere of controlled descent for grains, and gains for soybeans, which added 0.4% to $13.33 a bushel for the August contract, and 0.2% to $11.49 a bushel for the November lot as of 09:40 UK time (03:40 Chicago time).

It helped that soybeans ended higher on the Dalian exchange in China, the top importing country, too, up 0.3% at 4,361 yuan a tonne for January delivery.

Also in Asia, and in oilseeds, Kuala Lumpur palm oil added 0.3% to 2,427 ringgit a tonne.

Back in Chicago, corn for September was 0.5% lower at $4.14 a bushel, while the September contract dropped 0.5% to $4.20 a bushel, remaining above multi-month lows.

Soft red winter wheat for September was 0.4% down at $5.70 a bushel, while hard red winter wheat for September was 0.4% lower at $6.86 a bushel.

Cotton tumbles

In fact, cotton futures did far worse, falling 1.0% to 72.65 cents a pound in New York for December delivery, undermined by a further downgrade by the International Cotton Advisory Committee to its forecast for prices in 2014-15.

The ICAC added 500,000 tonnes to its forecast for stocks at the end of that season, taking them to 21.4m tonnes.

But arabica coffee made a better start, adding 0.6% to 171.95 cents a pound for September delivery, offered some support by generally supportive comments from Rabobank.

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