Could wheat gird its loins and bounce from eight-month lows to return above $7 a bushel?

Tuesday, while a day of the week marked according to Chicago lore by trend reversals, did not offer much promise for recovery in a risk asset, after the inconclusive Italian election result.

(Indeed, shares fell morthn 1% in London, and by 2% or so in Frankfurt and Paris)

The Five Star movement founded by comedian Beppe Grillo, Pier Luigi Bersani's centre-left coalition and the centre-right alliance headed by former prime minister Silvio Berlusconi all emerged with large shares of the vote.

That raised the prospect of an unworkable coalition, and the need for another election later this year.

Most importantly for markets, it meant uncertainty, and the potential for the third-ranked eurozone economy to lose its grip on efforts to tackle its debt mountain which were prioritised by Mario Monti's regime.

Scramble for safety

"We expect risky assets to remain under pressure until the picture in Italy becomes clearer," Barclays said

"Safe-haven assets, such as the US dollar, US Treasuries, and German bunds, will likely be the beneficiaries."

Agricultural commodities appeared less promising bets, and wheat had the extra negative of evidence that the US storms over the last week or so are having an impact in improving Plains winter wheat seedlings which have been struggling with drought.

The US Department of Agriculture overnight rated the proportion of wheat in Kansas, the top wheat-producing state, in good or excellent condition at 23%, up from 20% at the end of January.

And rain and snow is still coming, with amounts expected from this early-week event at 0.25-1.5 inches, "locally 2 inches", in parts of Kansas, Nebraska, Oklahoma and Texas, according to MDA.

"The upturn in snow across south central areas will further improve soil moisture once it melts," the weather service said.

'More moisture is needed'

That said, there were plenty of analysts questioning whether the sell-off in wheat - now down 10% this year, and nearly at parity with corn, over which it usually has a healthy premium – is getting overdone.

"While there may sufficient moisture for the crop to start growing again when it breaks dormancy in March, more moisture is needed through May to bump up crop yield," Joyce Liu at Philip Futures said.

"For now, we expect wheat prices to go even lower to the next support level at $6.75 a bushel as weather-related risk premium slowly erodes."

However, with the grain's 14-day relative strength index, a key technical indicator, "below 30 levels for three straight trading sessions since last Thursday", so indicating overselling, "we may see some short-covering today".

'Appetite could quickly return'

At Commonwealth Bank of Australia, Luke Mathews pointed to the improvement in the US wheat export record.

Latest weekly shipments, as measured by cargo inspections, came in at 21.2m bushels, below the (revised lower) 23.7m bushels the week before, but twice levels a year before.

"The bulls have seemingly given up on wheat prices over the past week, yet appetite could quickly return on the back of improving export demand or an unforeseen weather scare," Mr Mathews said.

"This is particularly the case as funds have recently amassed a large net short position," likely to push prices higher as it is closed.

'Whipping boy'

Still, Benson Quinn Commodities' Brian Henry questioned the willingness of investors to support wheat even at its lowest levels in eight months.

"The oversold nature of all three wheat markets [Chicago, Kansas and Minneapolis] may limit the aggressiveness of the sellers," he said.

"But markets remain wounded with plenty of technical headwinds and a story that lacks a supportive tone. The charts are offering very little reason to be long.

"It appears Chicago wheat remains the whipping boy of the market as owners of corn and soybeans spread their positions against wheat."

Nonetheless, Chicago wheat for March did manage to clamber back above $7.00 a bushel at one point, before easing back to $6.99 ¼ a bushel as of 09:30 UK time, 03:30 Chicago time, unchanged on the day.

The May lot was unchanged too, at $7.05 ¼ a bushel.

Improved export picture

Part of the impetus was the extent of the decline in wheat's premium over corn, which continued to get support on ideas of firm domestic US demand, evident in heady basis levels, and some better news on exports too.

Monday bought a sale of 127,000 tonnes of corn to "unknown destinations", including some for 2012-13, and the first announcement of corn exports through the USDA's daily alerts system since early January.

Weekly cargo inspections, at 11.6m bushels, were improved too, if still running at less than half year-ago levels.

Furthermore, Argentina's Rosario Grains Exchange reduced its estimate for the domestic corn harvest by 1.0m tonnes to 25.5m tonnes, well below the USDA figure of 27.0m tonnes.

Phillip Futures Ms Liu also flagged "support in both nearby and deferred contracts from talk of fund-liquidation, which had pressured corn prices lower, coming to an end".

Corn for March gained 0.4% to $6.96 ½ a bushel, and for May 0.3% to $6.87 ¾ a bushel.

Export weakness

It was in fact soybeans' turn to be the laggard, feeling pressure from a Brazilian harvest which has caught up after early rain delays, and may be running ahead of last year's pace, depending who you believe.

AgRural has 27% of the crop harvested, compared with 20% last year, while Celeres puts the current figure at 28%, and 2012's at 29%.

With fears over Brazil port strikes easing too, this has undermined ideas of a clamour for US soybeans by buyers with nowhere else to go.

Indeed, weekly US soybean exports, at 27.3m bushels, were well below the 40.8m bushels the week before, and missed market expectations too.

Soybeans for March shed 0.6% to $14.42 ¼ a bushel, with the better-traded May lot losing 0.7% to $14.25 ½ a bushel, and falling below its 10-day and 100-day moving averages to rest at its 20-day and 200-day lines.

'Large global excess'

Soft commodities proved less capable than wheat of pulling out of their slides, with New York arabica coffee for May shedding 0.8% to 141.90 cents a pound, while raw sugar for March dropped 1.1% to a fresh two-year low, for a spot contract, of 17.80 cents a pound.

The better-traded May raw sugar lot fell 0.8% to 17.95 cents a pound.

"Favourable crop weather in Brazil bode well for production output of sugar, which already is in large global excess," Ms Liu said.

In fact, industry group Unica will later on Tuesday unveil latest biweekly data on the cane crush in Brazil's Centre South region.

But, it being the low season, with processing ramping up in March-April, the statistics are viewed as unlikely to prove market moving.