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Morning markets: profit-taking hits wheat. But soybeans gain

Did wheat futures shoot their bolt in the last session, in soaring almost 4% in Chicago, their best performance in 10 months?

Or was this the start of a more permanent recovery?

Mike Mawdsley at Market 1 offered two, unfortunately contrasting, interpretations.

Wheat's close higher for four successive sessions "usually suggests a trend change", Mr Mawdsley said - good news for bulls, and farmers.

"Thus buy breaks," he said, if cautioning that investors as a precaution should put "sell stops below the lows of course".

'Impressive, but short-lived'

However, there is also the concern that the last session's rally was fuelled, ultimately, by panic covering by speculators of their hefty net short positions, a process which has its limits.

"Wheat finally seems to have enough news to get funds to cover shorts," Mr Mawdsley said

"Remember, short-covering rallies can be impressive, but short-lived."

Chart watching

And it is the more technical factors that investors are looking too, given a dearth of fresh wheat news.

(And some of what fundamental talk there was was price-negative, with Richard Feltes at Chicago-based RJ O'Brien, for instance, clocking talk that "domestic wheat mills are well covered into late spring".)

After all, more on the US wheat crop deterioration which spurred the last session's rally will not really be evident until it at least breaks dormancy, while the smaller-than-expected, if still huge, Canada stocks figure was a one-off.

"It remains to be seen how significant the damage is to the US wheat crop before we start worrying that the US production might take a beating," Vanessa Tan at Phillip Futures said.

"Dry conditions would become a larger threat when the wheat crop eventually emerges from dormancy and needs more moisture."

 'Plenty of room left to the upside'

"With a lack of wheat related news, the market is going to need to sustain enough momentum to keep the funds engaged on the buy side," Brian Henry at Benson Quinn Commodities said.

There is hope of this, with futures in US markets regaining their 20-day moving averages, while "technical studies in have firmed considerably", Mr Henry said.

"More traditional methods of measuring overbought conditions indicate there is plenty of room left to the upside. Daily momentum studies are quite supportive."

However, "on a very short term basis", wheat markets may nonetheless be rated overbought by other methodology, and could attract some profit-taking".

Which was what happened as of 09:45 UK time (03:45 Chicago time), with soft red winter wheat for March falling 0.3% to $5.82 ¾ a bushel in Chicago.

Still, hard red winter wheat, the source of the poor condition scare, added some premium in easing only 0.1% to $6.45 ¾ a bushel for March delivery.

Ukraine uncertainty

March corn, which closed the last session at the highest for a spot contract since October, struggled for direction altogether.

Sure, there are some fundamental factors in its favour, with Ukraine, a growing competitor in export markets, seeing a 40% slump in its overall grain shipments last month, which has mainly been attributed to poor weather, but with some ideas of political unrest scaring buyers too.

"Ukraine has been an aggressive exporter of corn to date, however they too are battling weather related logistical constraints and with the current political instability there we could see some additional demand shift to US shores," Benson Quinn Commodities said.

In fact, CHS Hedging noted that "traders speculate that increased US exports may decrease the  old crop carryout" figure when  the US Department of Agriculture unveils revised crop estimates on Monday in its next Wasde supply and demand report.

Also, "many farmers in the southern US will be switching back to cotton from corn for economic reasons this spring," the broker said, with prices of the fibre holding up well, supported by continued stockpiling by China, for 2013-14 at least.

Informa downgrades

And then there are the concerns over Brazilian dryness which have sent arabica coffee and raw sugar futures higher too, the country being the top producer and exporter of both.

Informa Economics crystallised concerns on Tuesday by cutting its forecast for Brazil's corn crop by 1m tonnes, while also cutting its estimate for production in Argentina, which suffered dry weather earlier on, by 2.4m tonnes to 22.6m tonnes.

And of course the dryness is a concern for soybeans too, of which Brazil is already in the teeth of harvesting in some areas, and for which Michael Cordonnier has said that 3m-5m tonnes could be at risk if the dearth of rain continues, largely in the south, where the crop is still flowering.

'Weather does not concern me'

However, in Brazil, ag consultant Kory Melby, a "Minnesota Farmer living in Goiânia", took a more cautious view of potential damage.

"At this time, the hot dry weather does not concern me much. It makes for great harvest weather," he said.

"We need to keep in mind that Mato Grosso is understated when it comes to [soybean] crop size this year. Mato Grosso can offset some losses in other [areas].

"If this pattern lasts another 10 days, I would consider cutting the size of the Brazil soybean crop a bit."

'Stubborn resistance overcome'

Still, whatever the fundamentals, corn had some technical support to cling to in its breach of the $4.40-a-bushel level in the last session which many had seen as a key chart point.

"Stubborn resistance at $4.40 in the March was finally overcome on Tuesday," CHS said.

Furthermore, the contract also closed above its 100-day moving average for the first time since June (when it was more than $1 a bushel higher).

March corn stood unchanged at $4.41 ¾ a bushel.

'Increased demand for US soymeal'

Soybeans gained extra support from the standoff by farmers in Argentina against selling soybeans – the country being the top exporter of soymeal and soyoil, besides being a big seller of the oilseed itself too.

Argentine farmers have withheld crop as a, dollar denominated, hedge against peso depreciation and domestic inflation – in the process gaining threats of fines from the Argentine government.

"As a result, we saw increased demand for US soymeal," Phillip Futures' Ms Tan said.

"Overseas buyers scrambled to get available supplies in light of Argentina cutting back on soymeal output."

Soymeal was actually unchanged this session at $447.00 a short ton for March delivery, with soyoil edging 0.2% higher to 37.80 cents a pound.

Soybeans for March were 0.4% higher at $13.18 ½ a bushel, have gained technical kudos by closing above $13.00 a bushel in the last session.

Softs harden

As for the coffee and raw sugar, the main focus of Brazil weather concerns, arabica beans for March opened firm, adding 0.7% to 137.20 cents a pound, if failing yet to set a fresh eight-month high.

New York raw sugar for March gained 0.7% to 16.17 cents a pound, getting back above its 50-day moving average, which it has not closed over in three months.

Evening markets: wheat prices soar, taking focus from coffee
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