Grain futures found traction at six-month lows. But there was no let-up in the new-year selling on soybean futures, amid improving ideas for South American crops.

Ideas for the soybean harvest in Brazil received a boost overnight when the US Department of Agriculture's attaché in Brasilia, Jeff Zimmerman, upgraded by 1m tonnes to 83m tonnes his forecast for the crop.

"Crop conditions are rated 'good' across all major producing regions," Mr Zimmerman noted, including in Mato Grosso, where a fortnight of dryness has raised some concerns among other commentators.

The upgrade took his estimate for the Brazil soy harvest, which has kicked off in few areas, 2m tonnes above the official USDA forecast.

'Argentina turns dry'

Meanwhile, hopes for Argentine crops are being raised by a break in the wet weather which has delayed plantings.

"Argentina turns dry, and south east Brazil super wet, the next 10 days," Dave Tolleris at WxRisk.com said.

"The weather models are shifting the persistent heavy rains over further to the north, into Mato Grosso do Sul, Parana and Sao Paulo."

Consultancy Agritel said: "More favourable weather conditions let corn and soybean plantings progress in Argentina."

Ker Chung Yang, at Phillip Futures, added that "near-term conditions across South America look generally favourable for crop development".

'Funds on the run'

With little sign of demand from China, which is on holiday, Chicago soybeans for March dropped 0.6% to $13.84 ½ a bushel as of 09:30 UK time (03:30 Chicago time), their weakest since late November.

Broader fund selling was seen continuing too, on ideas of big harvests in South America, and the US later in 2013, refilling silos.

At Benson Quinn Commodities, Kim Rugel, noted the lure of "sectors promising better returns".

"A bearish long range outlook for soybeans, corn and wheat - with analysts projecting ample supplies if the US realises a return to normal weather next season - has had the funds on the run for past month as major investment banks have downgrade the sector's price outlook over the next 12 months.

"High prices are the cure for high prices, with the southern hemisphere expected to produce record large bean crops and northern hemisphere producers expected to ramp up plantings of corn and beans come spring."

'Bears in full control'

That soyoil continued relative outperformance, easing a modest 0.1% to 51.00 cents a pound for March delivery, was down to continued cheer at a measure in the US budget agreement on late Tuesday extending the $1-a-gallon tax credit on biodiesel, of which the vegetable oil is a major feedstock.

(Soyoil will not, it seems, be purchased as part of the fund rebalancing exercise, despite showing modest gains last year, implying a slight trim in positions to get back to index weights. Some 12,000 soyoil contracts will be sold during the rebalancing progress, which starts next week.)

Rises in grains appeared more down to profit-taking by investors with short positions now sitting on hefty gains, following the declines of more than $0.60 a bushel in Chicago corn futures, and $1 a bushel in Chicago wheat, over the past month.

"For now the bears are in full control," Mike Mawdsley at Market 1 said.

'Extremely oversold'

However, there is some idea that the grains are now so oversold that a bounce in prices may be on the cards, even if only a temporary one.

Brian Henry at Benson Quinn Commodities, terming wheat "extremely oversold", said that "potential buyers can let this break continue to play out, but I feel the easy money to down side has been made".

At Phillip Futures, Lynette Tan said: "Today, wheat may edge slightly higher as markets compensate for the large drop yesterday," when Chicago's March lot

Chicago wheat for March added 0.4% to $7.58 ¾ a bushel.

Corn for March edged 0.1% higher to $6.91 ¾ a bushel.

'Rebound unlikely to sustain'

Ms Tan was more downbeat over prospects for New York arabica coffee extending its trend of the last session, when it soared 4%, on what looked like short-covering ahead of rebalancing process which should foster purchases of the bean, to adjust for a 37% slump in prices last year.

"The rebound is unlikely to sustain through today as there is insufficient fundamental support and as the euphoria in global markets wear off," Ms Tan said.

Likewise in raw sugar, which gained nearly 1% in the last session, "there seem to be nothing fundamental backing the strength to sustain through another day today".

Raw sugar for March actually nudged 0.1% higher to 19.70 cents a pound.