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Morning markets: resilient US crop condition softens prices

"Markets were oversold and due for a bounce. Now the question will be 'how far can we rally?'" Mike Mawdsley at broker Market 1 said, after the near 2% gains in Chicago grain and soybean futures in the last session.

The answer was, well, you've guessed it, "no further", at least in early deals, with hopes of further gains smothered by data overnight showing that US corn and soybean crops remained in strong health.

Crop ratings

OK, the proportion of the US corn crop rated "good" or "excellent" by the US Department of Agriculture dropped by 2 points.

However, this decline was in line with market expectations and, at 73% in the top two grades, the crop remains in strong shape, a figure beaten only once in the last 20 years, in 2004, and matching the rating in 2000.

For soybeans, the rating did not decline at all, staying at 71% good or excellent, remaining, just, the best rating in the last 20 years, narrowly ahead of 2004.

(For the record, 2004 produced an all-time high corn yield, of 160.3 bushels per acre, with the 2000 result then the second strongest.

For soybeans, 2004 also saw a record, of 42.2 bushels per acre, with the 2000 figure of 38.1 bushels per acre the fourth best at the time.)

'Should see this as a bearish'

"This report was seen as neutral to bearish since many analysts were looking for a seasonal decline in condition," one US broker said.

At Citigroup, Sterling Smith said: "Crop conditions came in as unchanged from last week and the market should see this as a bearish."

At RJ O'Brien, Richard Feltes said that "ratings updates, taken collectively, are bearish as corn did not decline as much as some had feared, while soybeans held steady".

It appeared that "cool temperatures played a major role in offsetting dry July" weather.

'Rain was a disappointment'

Sure, there remains a little concern about the Midwest weather.

"Most areas would welcome a shot of rain as beans enter the pod-filling stage," CHS Hedging said. 

"Spotty, localised weekend rain was a disappointment to traders and makes forecasted showers later this week a focal point going forward."

However, even if rains are not forthcoming, the still-firm health of crops offers them plenty of elbow room for disappointment before expectations of huge yields are threatened.

Huge Brazil crop ahead?

Corn for December dropped 0.6% to $3.67 a bushel as of 09:30 UK time (03:30 Chicago time), while new crop November soybeans fared a little worse, falling 0.9% to $10.69 a bushel, undermined by the better-than-expected US crop rating.

Besides, AgRural reminded of the huge potential for South American crops to be planted later in 2014, and harvested early in 2015, seeing soybean sowings jumping 4.9% to 31m hectares (76.6m acres) - the same as US growers planted last year.

The decline in crop prices has made soybeans, the default row crop for South American farmers, more appealing than corn, a more input-heavy alternative.

"Under normal conditions, it could mean a crop of 94m tonnes," CHS said, noting that the USDA's has forecast a Brazilian crop of 91m tonnes.

Still, not all non-US influences were quite so poor, with January soybeans ending 0.9% higher at 4,539 yuan a tonne on the Dalian exchange in China, the top importing country of the oilseed.

This despite lower demand at the latest weekly auction from Chinese state soybean reserves, with 19.2% of the 361,588 tonnes on offer actually purchased.

'Growing concern'

Still, wheat's decline proved relatively modest, with Chicago's September contract shedding 0.2% to $5.42 a bushel.

CHS, like other brokers, noted "quality concerns connected with too much rain in Europe, specifically France and Germany", the EU's top two producing countries.

RJ O'Brien's Richard Feltes said that "in the short term, there is growing concern about whether the EU and Ukraine will be able to meet strict Egyptian import specifications", Egypt being the top wheat importing country.

And at an Egyptian tender last week, US wheat emerged as the most competitive, excluding freight, with offers of Russian supplies, typically the price leader at this time of year, actually nudging higher.

'More supportive stance'

However, there are other reasons for wheat's outperformance too, a factor typical at this time of year as it begins to emerge from the heat of the northern hemisphere harvest, easing pressure from the temporary spike in supplies.

"The seasonal tendency for wheat to gain on corn in mid-August is already underway," Mr Feltes said.

At Benson Quinn Commodities, Brian Henry noted a chart support, as "technicals continue to shift to a more supportive stance".

In the last session, "Chicago and Kansas City wheat being able to establish trade above their respective 20-day moving averages overnight was key to wheat being able to trade to its highest levels in a couple of weeks.

"Short term, daily and weekly momentum studies have all improved to the point that additional short-covering is possible."

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