Can Chicago grain and soybean futures hang on to gains this time?

As in the last session, they at least started strong, especially wheat - although there is still plenty of caution around, even with some ideas that delays in implementing Dodd-Frank rules had at least stalled selling on that front, which many blamed for Monday's price tumbles.

Underpinning sentiment this time were broadly positive external markets, helped by confirmation by Moody's of a Baa3 rating credit rating on Spain, albeit with a negative outlook.

The ratings agency, which four months ago warned of a possible downgrade, said late on Tuesday that risks to Spanish debt had been reduced by the European Central Bank's willingness to purchase of the country's bonds.

Shares gained on Asian markets, by 1.2% in Tokyo, while London copper and Brent crude also made some headway, helped by a falling dollar, which makes dollar-denominated assets more affordable to buyers in other currencies.

The greenback, whose weakness often indicates in the current climate a growing appetite for risk, dropped 0.3% against a basket of currencies.

'Supporting bullish positioning'

And at New York's Ice exchange, soft commodities built on gains of the last session too, with cotton for December reaching 74.89 cents a pound, adding a further 0.03 cents to its rise then of nearly 4% on Tuesday.

The fibre, which as an industrial commodity tends to move more in line with economic sentiment, is being boosted by talk of the poor quality of the US crop, besides the improved economic picture.

"The poor fibre quality of this year's US cotton crop has contributed to official Ice warehouse inventories falling to just 7,802 bales as at October 15, down 58% year on year," Luke Mathews at Commonwealth Bank of Australia said.

"These low warehouse stocks are supporting bullish positioning in the Ice cotton future market."

Raw sugar for March added 0.2% to 20.21 cents a pound.

"The weaker dollar is the main driver" of sugar headway, Lynette Tan at Phillip Futures said, noting extra support from "uncertainty of next season's sugar output".

'Time on the side the bears'

Against that background, Chicago crops found headway easier too, despite the negative sentiment which allowed bears to claw their way back to power by the close of the last session.

In soybeans, for instance, Richard Feltes at RJ O'Brien noted "an adequately supplied pipeline, evident in a carry in CIF soy market, and a steady stream of better-than-expected soybeans yields from Indiana".

Overall, "time is on the side the bears—especially with negative chart action, improving Brazilian rains, more reports of South American corn exports, the approaching US fiscal cliff, still-sizeable managed fund long holdings,  and slowing growth globally", he added.

At Benson Quinn Commodities, Kim Rugel noted the impact of "large long fund positions and the magnetic attraction of the chart gap at $14.78 a bushel" in making "trade very hesitant to add fresh longs".

Mind the gap

The chart gap idea refers to a leap that November soybeans made in July, from $14.78 a bushel to $14.93 a bushel, leaving a $0.15 void untraded and, according to technical analysis, liable to be filled once the lot returns to this region.

In fact, the contract stalled its decline after filling only a part of the gap on Monday.

And the filling in of the gap could clear the way for "prices to go back up" FCStone's Mike O'Dea told reporters at a London conference on Tuesday.

Soybeans in fact proved the weakest of Chicago's big three crops, notching up a gain of 0.1% to $14.95 a bushel as of 09:20 UK time (08:20 Chicago time).

'Largest purchase in years'

Wheat did better, adding 0.4% to $8.50 ¾ a bushel in Chicago for December delivery, helped in part by reports that China has bought 300,000 tonnes of spring wheat from Canada, with some talk of purchases of 500,000-600,000 tonnes.

"This is China's largest purchase of high protein wheat in years," CBA's Luke Mathews said.

Furthermore, Australian data out overnight showed the country's wheat stocks, as held by bulk handlers, falling to 7.1m tonnes as of the end of September (the close of the 2011-12 marketing year in Australia).

That represented a drop of 2.0m tonnes month on month, and 14% year on year, with milling wheat again particularly in demand.

'Most expensive in the world'

And as an extra boost to prices, fears lingered over the slow development of US winter wheat seedlings, besides the relatively poor health of the crop in Kansas, America's top wheat state, in its first official condition reading.

"We remain wary that conditions in the northern US wheat belt - northern Kansas to South Dakota - remain too dry and those wheat crops will be poorly established leading into winter dormancy," Mr Mathews said.

In Australia too, "minimal rainfall has been recorded through the Western Australia wheatbelt in October, resulting in further reductions in yield potentials".

The prospect of weaker supplies has made Western Australia wheat "now the most expensive in the world".

'Strong seasonal tendency'

Against rising wheat prices, fellow grain corn nudged higher too, with the forthcoming close of the US harvest adding extra hope that pressure from that score might be easing too, especially with farmers seen as reluctant sellers at current prices.

Furthermore, historical analysis "shows a strong seasonal tendency for wheat to erode versus corn from mid-October through mid-December", RJ O'Brien's Richard Feltes said.   

Chicago corn for December delivery added 0.3% to $7.40 ½ a bushel.