Agricultural commodities, star financial market performers for more than a month, returned to the bottom of the class on Tuesday, as the prospect of wetter Midwest weather prompted a further round of profit-taking.

The influence from external markets turned more positive, after an improvement in Chinese manufacturing data.

A purchasing managers' index compiled by HSBC showed activity improving to a nine-month high of 49.5 this month, up from 48.2 in June.

That helped shares put the brakes on their round of declines, and post small gains in many markets.

The safe haven of the dollar stood little changed, while Brent crude added 0.2%.

'Pushed and pulled'

But agricultural commodities declined to join in the upswing, bar cotton, which as an industrial commodity, tends to move more closely in line with the macro-economic mood than food crops.

New York's December contract added 0.2% to 72.36 cents a pound as of 09:00 UK time (03:00 Chicago time, 04:00 New York time).

"Cotton prices continue to be pushed and pulled by unfolding global economic developments," Luke Mathews at Commonwealth Bank of Australia said.

Indeed, on Tuesday, this allowed the fibre to overcome some upbeat crop condition data out overnight, when the US Department of Agriculture lifted by two points to 47% the proportion of the domestic crop rated in "good" or "excellent" condition, up from 29%

"Cotton crop conditions improved last week in response to recent rainfall," Mr Mathews said.

Thai switch

Raw sugar dropped 0.8% to23.71 cents a pound sapped by a move by Thailand's government to switch 100,000 tonnes from domestic programmes for exports.

This move could take shipments to a record high of 7.9m tonnes this year.

Besides, funds were in no mood to hold on to hefty net long positions in the likes of sugar, as well as soybeans and wheat, after the last session reminded that the only way for food prices was not upwards.

The latest declines came despite overnight USDA data showing further deterioration in the condition of US row crops, with the proportion of corn seen good or excellent dropping five points to 26%, and the proportion of soybeans so rated falling three points to 31%.

Poor crops

The decline included some worrying headlines. In soybeans, for instance, more (35%) are rated in "poor" or "very poor" condition than good or excellent.

For corn, where this was already true, none of the crop in Illinois, the second-biggest producing state, is rated in excellent health, with only 2% of the crop in top-ranked Iowa making the grade.

However, that had already been factored in by the jump in prices of both corn and soybeans to record highs last week.

What is ahead is the prospect of improved weather – although how much improved depends on which weather model you believe.

Clash of the models

As ever, it is the GFS model which is wetter.

"The European model in the six-to-10 day outlook has a much smaller trough over the eastern Corn Belt and east coast and a much bigger heat dome that is still centred over Kansas and Oklahoma by July 31-August 1," WxRisk.com said.

"The European model has the western Corn Belt much drier and hotter than the GFS model does."

Whatever, Jon Michalscheck at Benson Quinn Commodities said: "Even though the GFS model has not shown the accuracy the European weather model has this summer, the market used it as an excuse to force some weak length to exit positions."

Mike Mawdsley at Market 1 said: "True, chances for rain are started to increase. But at some point the market was going to go down regardless of the news."

'Still salvageable'

In fact, the official Climate Prediction Center outlook sees "most of the Midwest in the near-normal rainfall area" in the six-to-10 day horizon, although temperatures will be above average, and much above average in some areas, WxRisk.com said.

The upshot was more selling, particularly in soybeans, in which speculators have a near-record net long position (for which read unfulfilled contract sales) and which stand to gain most from better weather.

"While there has been some [soybean] crop damage, part of the crop is still salvageable with a significant shift in weather," Phillip Futures said.

"The impending relief is expected to more helpful to soybean than corn, as the former enters its pod-setting and pod-filling stages that are critical to determining yield while much damage has already been done to later during its critical pollination stage."

Chicago's best-traded November contract lost 2.7% to $15.78 ¾ a bushel, while the spot August lot dropped 2.5% to $16.56 ½ a bushel.

Soymeal, the top agricultural commodities of 2012, stayed particularly weak, down 2.9% at $508.00 a short ton for August delivery.

Export competition

Wheat was hard pressed again too, as funds began to unwind a large net long position which is at odds with their typical positioning in the grain, and a move marrying with ideas that the grain will underperform corn, which is in far shorter supply.

"We think this [wheat-corn] spread will narrow further as corn prices itself out of the global feed ration," CBA's Mr Mathews said.

At Benson Quinn, Brian Henry noted the impact already of high wheat prices on demand.

"The results of the Jordan wheat tender indicates that US spot values do not currently work into this location," he said.

"It appears US spot values would have to come down 50+ cents [a bushel] to be competitive with the $325-a-tonne offer from the Black Sea."

Wheat for September dropped 2.0% to $8.94 ¼ a bushel.

Resilient corn

Corn fared best, supported by the fact that even rains now will not do that much to help the Midwest crop, and by the fact that the fund net long position remains relatively small, meaning less pressure for liquidation.

The December lot dropped 1.2% to $7.76 ½ a bushel, with the September contract shedding 1.7% to $8.00 ¼ a bushel.