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Morning markets: soy, wheat show rare gains as Wasde nears

Crop report day has arrived.

That is, the day when the US Department of Agriculture, in a highpoint of the agricultural commodities calendar, unveils its monthly Wasde briefing on world crop supply and demand.

There had been some thought that the slump in grain prices - pressed by expectations of huge US corn and soybean crops expected to be confirmed in the Wasde - would take a breather in the run up to the briefing.

Such ideas were finally realised in early deals on Friday, when soybeans actually rose, looking for their first positive session in 10, and grains showed reluctance to shed yet more ground.

'Oversold conditions'

In fact, there is some idea that the extent of selling ahead of the report might provoke buying if the Wasde data prove not as bearish, or even match, investors' expectations.

"Given the oversold conditions, recent fund liquidation and offers heavily outweighing bids with the trend prevailing in the absence of supportive news, one can't rule out a 'buy the fact' moment once the report is released," said Brian Henry at Benson Quinn Commodities.

"Sell the rumour, buy the fact," or vice versa, is an adage common to many markets - the concept that investors, being forward looking, have factor in bad/good news in advance, and take profits when it appears, causing apparently contrary price moves.

There is certainly broad agreement that futures are generally oversold.

At Citigroup, Sterling Smith said, of wheat, that "there is a technical bounce looming out there somewhere for this market", but added that "a test of the $5.30-a-bushel mark may be required to spark some buying".

'Wasn't entirely unexpected'

 And that is still a while away for Chicago's September contract, even after its latest losing streak, which dragged the lot in the last session to the lowest in four years for a nearest-but-one contract.

The lot stood 0.1% higher on the day at $5.49 a bushel, as of 09:00 UK time (03:00 Chicago time), managing to overcome further talk of a not-so-bad US harvest.

CHS Hedging noted talk that the "hard red winter wheat harvest continues to find better-than-expected yields".

Mr Henry said that "reports indicate hard red winter wheat yields are improving as the harvest moves deeper into Nebraska", although "this wasn't entirely unexpected", with the state not suffering drought as severely as the likes of Oklahoma and Texas further south.

"Harvest reports for soft red winter wheat indicate better quality, and big yields continue," he added.

Premium erodes

In fact, Chicago soft red winter wheat continued its outperformance of Kansas City hard red winter wheat, which fell 0.1% to $6.46 a bushel for September, the gap between the two falling further below $1 a bushel.

Whatever the fundamentals, Kansas City wheat is feeling extra pressure from the large net long position that funds maintain, at a time when they are bent on liquidation.

Hedge funds have been net short on Chicago wheat futures and options for a month.

'Hasn't surfaced yet'

As for fellow grain corn - which has like soybeans fallen for nine successive sessions, over which the best-traded December contract has lost some 12% - it too stabilised, for now at least.

The lot was down only 0.25 cents at $3.92 a bushel, with the September contract also 0.25 cents lower, at $3.86 a bushel.

Not that selling has disappeared for ever.

"Lower prices are supposed to buy demand, it hasn't surfaced yet," CHS Hedging said.

In fact, there is something of a debate going on about corn demand, as well as yield, ahead of the Wasde, with  broad idea that feed consumption for 2013-14 has been overstated, a factor which may have a knock on effect to the 2014-15 figure too.

This has been given credence by the surprisingly large US corn stocks revealed in a June 30 report, seen as a signal that less is disappearing down animals' mouths than had been thought.

'Bear stew'

"Trade is looking for 2013-14 US corn feed use of 5.20bn-5.25bn bushels, versus the USDA's June forecast of 5.30bn bushels," Richard Feltes at RJ O'Brien said.

Citigroup's Sterling Smith said that while the USDA may hold fire in lowering its feed use number this time, "we do however think that the number will be adjusted lower at some point and the current levels are overstated.

"Demand is beginning to improve. However, the improvements will be slow and incremental."

The corn feed slowness is "just one more ingredient in the bear stew that is brewing here".

DDG bargain hunting

The US Grains Council attempted to add a bit of bullishness into the recipe by flagging the fresh buyers for distillers' grains (DDGs), a corn-based feed ingredient, being lured out by the lower prices prompted by Chinese rejection of cargos, amid a fuss over a genetically modified corn variety grown in the US but as yet unapproved in Beijing.

"Among the first to seize the opportunity was Taiwan, which boosted imports of DDGs to 27,919 tonnes in June, of which about 13% was re-exported from China," said the council, which promotes US grain exports.

"Almost every feed mill in Taiwan is alert to the opportunity to purchase US DDGs rejected from China, because of the price discount.

"Increased interest is also surfacing across Europe, the Middle East and North Africa."

Bouncing beans

Soybeans actually rose, with the new crop November contract adding 0.2% to $10.95 a bushel, and the old crop August lot recovering 0.3% to $12.36 a bushel.

This time, they received little help from the vegetable oils market, with palm oil reverting to the decline despite yesterday's bullish Malaysian stocks data.

Palm oil for September was 1.0% lower at 2,362 ringgit a tonne in Kuala Lumpur, a decline blamed on profit-taking, encouraged by a weaker crude oil price, with Brent back at $108 a barrel, and close to losing that.

Vegetable oils are linked to energy markets through their use in making biodiesel.

Meanwhile, on China's Dalian exchange, soybean futures proved relatively resolute, ending down just 4 yuan at 4,321 yuan a tonne.

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