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Morning markets: strong US crop ratings quash grains rally

There was a potential opportunity last night for grain markets to get enough of a bullish injection to sustain some kind of rally.

If weekly US Department of Agriculture US crop progress data showed even some hint of setbacks, futures might get the ammunition they needed to rally for two successive sessions, something they have not done since last month.

But the USDA's report showed no such setbacks. Most crops held their fine condition and where there were ratings changes, such as in corn, they improved, with the proportion of the US seen as in "good" or "excellent" health rising by 1 point to 76%.

That vies with 1999 as the best condition rating of the past 20 years.

Cotton deterioration

The one exception was cotton, for which the rating fell by 2 points to 53% good or excellent.

Crops in Arkansas and Texas declined.

Not that this was enough to boost New York cotton futures, which for December eased 0.1% to 68.21 cents a pound as of 09:15 UK time (03:15 Chicago time), lacking yet the return of end-user bargain buying which helped revive them in the last session.

Data from the China Cotton Association showed China importing 218,600 tonnes of the fibre last month, down 19.1% year on year, although decline had been expected, given reforms to the country's cotton regime.

Month on month, imports rose 13.9%.

Healthy crops

Still, back to grains and oilseeds, where there was change in condition, it was for the better.

Even soybeans' hold at 75% rated good or excellent disguised a one-point shift from good to excellent.

Ditto spring wheat, which retained overall a good or excellent rating of 70%.

As for the winter wheat harvest, progress to 69% complete, up 12 points week on week, was enough to take it back above the average pace.

Corn pollination is also marginally ahead of the average, with 34% of the crop silking, giving no sign of any hangover from the spring sowing delays, and indeed meaning it is occurring during current weather deemed ideal.

'Bearish picture'

This was hardly the kind of environment to encourage price gains.

"The problem for corn [bulls] is that we have already entered the critical stages and it will be hard for any meaningful losses to occur during the remainder of the growing season," one US broker said.

Citigroup's Sterling Smith said: "The crop conditions report does paint a bearish picture as conditions continued to improve.

"Excellent pollination weather is expected, and while it is still too early to call this crop made we are rapidly approaching that point."

Prices fall

Price headway looked especially difficult with it being a Tuesday, a day which by Chicago lore reverses the trend of the previous day, implying falls this session.

Certainly, Chicago corn for December was trading 0.5% lower at $3.86 a bushel, while the old-crop September lot, in its first day as the spot contract, was down 0.6% at $3.79 a bushel.

Earlier, the September lot touched $3.78 a bushel, setting a four-year low for a spot contract.

That got the gloomy price talk started again. Brian Henry at Benson Quinn Commodities said that the "next downside objectives are in the neighbourhood of $3.55-3.60 a bushel".

'Understandably vulnerable'

In fact, there is a growing idea that values may be close to finding some kind of bottom.

After Macquarie talked of corn futures trading in the $3.75-4.00 a bushel area, the University of Illinois said that an "average price in the year ahead near $3.75 would be consistent with similar supply-consumption scenarios of the recent past.

"It appears that the market has already priced in an average yield of at least 170 bushels an acre."

Furthermore, there is even some worry they the weather might be proving so perfect that it will leave US crops ill placed to cope should weather turn poor later in the growing season, a threat in particular to soybeans, which have yet to go through their sensitive pod-filling stage.

"Given the extent of the across-the-board sell-off in ag markets since mid-May, reports of shallow rooted crops and fear of an abrupt change in mid-summer weather pattern at a time of peaking water usage requirements, ag markets are understandably vulnerable to short term raids by die-hard bulls," Richard Feltes at Chicago broker RJ O'Brien said.

Soybeans vs corn

Still, for now, soybeans for November were 0.6% lower at $10.80 a bushel, just above the contract low set on Friday, while the August lot, in its first day as the spot contract, was down 1.0% at $11.85 a bushel.

That is the lowest for a spot contract since January 2012.

The new crop November contract is maintaining its strong rating vs December corn of 2.80:1.

However, that may be about to change, with Moore Research analysis revealing that the ratio typically eases into mid-August.

'Should be concerned'

As for wheat, it dropped 0.5% to $5.35 a bushel in Chicago, staying under pressure from expectations for decent crops in many major producing countries, besides the improved US results as harvesting of winter crop moves north.

As an extra bearish point, the Australian Bureau of Meteorology said on Tuesday that the El Nino weather pattern, should it arrive, looks increasingly unlikely to be a severe one, with cooler Pacific temperatures hinting at only a modest iteration.

That bodes well for Australia's east coast not receiving crop-threatening drought.

Meanwhile, Benson Quinn Commodities highlighted the potential for Ukraine to undermine values on export markets.

"Ukraine continues to deal with a dicey political situation and should be concerned about the lack of corn and wheat sales they have on the books," the broker said.

"Slashing price may be their best option."

Corn futures end losing streak. Wheat prices jump, for once
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