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Morning markets: Turnaround Tuesday helps grains - a little

If there was going to be a day when grains staged a revival, today looked a likely bet.

Tuesdays have a habit of producing trend reversals, Chicago traders say.

But selling in grains is so entrenched that Turnaround Tuesday arrived in a weakened version, with only Chicago wheat showing gains, and even then small ones.

Egyptian prospects

It helped, for wheat, that a fresh sign of demand emerged with Egypt's Gasc grain authority revealing yet another tender.

The US Department of Agriculture has highlighted the potential for rebounding purchases by Egypt, the top wheat importing country, after a slump in 2012-13 prompted by economic difficulties.

"This year, the Egyptian economy and import potential is expected to be supported by sizeable financial assistance pledged by Saudi Arabia, United Arab Emirates, and Kuwait," the USDA said.

And with Gasc having unveiled six tenders since the start of last month, albeit for one of which the order was cancelled, the USDA looks bang on the money.

'Capacity constraints'

But will the USDA prove right in another forecast, that Canada may take an unusually high profile in tenders by the likes of Egypt?

Usually, Canada's wheat would be too hard, and expensive, for Egypt's needs. But Canada's harvest this year, while record in quantity, is not so hot on quality, leading to ideas it will end up in atypical destinations.

One problem is logistical, with large crop volumes testing Canada's logistics, with a transport squeeze an issue in the US too, for that matter.

At Minneapolis-based Benson Quinn Commodities, Brian Henry flagged that "the trade has made mention of capacity constraints at port due to soybean and corn bookings, which is an issue that has been developing through the fall.

"Port capacity issues are limiting the aggressiveness of the US wheat exporter."

'Looks competitively priced'

Indeed, there is talk that the only reason that US wheat was not offered in the last Gasc tender, last week, was because of a transport squeeze, rather than anything to do with a shortage of grain or uncompetitive price.

"Although it now looks competitively priced, no US wheat was offered, almost certainly because they could not be sure of being able to load it in time," traders at a major European commodities house said.

And if US wheat cannot be shipped abroad, it needs a to find a domestic consumer, one of the reasons for price pressure which has driven futures in Chicago, Kansas City and Minneapolis to contract lows.

'Winterkill concerns eased'

Other reasons for pressure include an improvement in weather for winter crops.

"Concerns over possible winterkill in the US and the Black Sea region have eased with current crop-friendly temperatures," Luke Mathews at Commonwealth Bank of Australia said.

"In addition, Europe's Mars crop forecasting unit suggests most crops across the bloc are in a favourable condition and will be sufficiently hardened to withstand cold temperatures this winter."

Still, as of 09:45 UK time (03:45 Chicago time) wheat for March edged 0.1% higher to $6.22 a bushel in Chicago, looking for only its second positive session in the last 10.

Investors in Kansas City were less upbeat, keeping the March contract unchanged at $6.65 a bushel, with Minneapolis spring wheat for March also stationary, at $6.54 a bushel.

'Paints a bearish picture'

It little helped that corn remained under the cosh, static at $4.23 a bushel for March, with investors nervous about calling time on concerns about China's rejection of US corn imports on grounds of containing an unapproved (In Beijing) genetically modified variety.

"Marketers remain concerned that China may continue to reject GMO corn from the US," CHS Hedging said.

Sure, Tom Vilsack, the US agriculture secretary, is with a team of industry leaders and US officials holding annual trade talks in Beijing next week.

However, "it remains to be seen how long China would take to respond to such prompting", one US broker said.

"Until then, the situation in China paints a bearish picture for US corn."

Extra bearish pressure has come from an effort by some US senators to remove the US ethanol mandate.

China concerns

This time, soybeans dropped too, although by a modest 0.3% to $13.33 a bushel for January delivery.

While dryness in Argentina is raising a little comment, fears are not that large yet.

There is more concern, as CHS Hedging noted "among soybean traders that China may cancel purchases out of the US and switch to South America".

Or will the epidemic of bird flu, of which another case was reported in China over the weekend, return to the headlines to quell demand expectations for meat, and thereby animal feed?

"The potential impact of bird flu on soybean demand is unknown," CHS said.

'Profitability is higher than corn'

As a further reason to go cautious on buying soybeans, their relation to corn prices is going off the scale.

The soybean: corn ratio, as far as the US is concerned, will come into particular focus in the spring, as farmers finalise planting plans.

Still, already it is attracting comment, with November soybeans worth nearly 2.6 times December corn, on 2014 basis, a historically elevated figure.

"At such a high ratio, soybean profitability is higher than corn in many areas and supports a large acreage swap to soybeans," one US broker said.

Already, of course, relatively high soybean prices are provoking large South American soybean plantings, and expectations of a small sowings of follow-on safrinha corn.

'Fundamentals still bearish'

Among soft commodities, arabica coffee started firm, adding 0.1% to 115.40 cents a pound for March delivery, looking to recover more of a premium against robusta coffee, which dropped 1.0% to $1,750 a tonne in London for March.

Not that all observers are upbeat over coffee price prospects.

"Fundamentals of the arabica coffee market are still bearish as we are still experiencing a global surplus of arabica coffee supplies, with expectations of a large Brazilian crop and a recovery in Colombian output that would further add to this global surplus of beans," Vanessa Tan at Phillip Futures said.

"According to the National Coffee Growers' Federation, Colombia's coffee output could continue to recover significantly as millions of trees have yet to reach productive age."

'Tight warehouse stocks'

However, cotton for March fell 0.7% to 82.80 cents a pound in New York.

The decline was attributed to profit-taking after a fifth consecutive gain in the last session, the longest winning streak since September.

Nonetheless, "tight warehouse stocks in the US are supporting the current strength in ICE cotton futures", Luke Mathews at Commonwealth Bank of Australia said.

Certified inventories have fallen to 57,533 bales, data late on Monday showed, down from 58,093 bales the previous session.

Evening markets: Argentine dryness threat revives soy prices
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