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Morning markets: wheat stages a recovery. But can it last?

Grain markets started on a positive footing, although as to whether that can last, soybeans at least face some key data later.

The Census Bureau will release statistics on US imports for April for which the figure for soybeans is being closely watched, to show how much of the oilseed is making its way into the country to resolve the unusually tight soybean balance sheet.

After all, separate data out at the end of the month, for US crop inventories as of Sunday, are expected to show the "lowest US June 1 soybean stocks in recent memory", Richard Feltes at broker RJ O'Brien said, flagging that there is "no indication yet" of a slowdown in the exports sapping supplies.

Indeed, it is "interesting to note that", whatever occurs on the flat price, "analogue years of tight old crop US soybean stocks witnessed renewed strength in August/November futures soybean spreads in mid-June", Mr Feltes said.

(This after the completion of the, ongoing, roll process when funds sell out of nearby, soon-to-expire contracts in favour of further ahead lots, putting unusual pressures on spreads.)

Old vs new

In fact, there is some idea that the US harvest last year was a little larger than the USDA has factored in, reflected in a lower basis in the western Midwest than might be expected.

Still, the idea of reviving old crop-new crop spreads receive some support in early deals on Wednesday, with July soybeans adding 0.3% to $14.85 a bushel in Chicago as of 09:10 UK time (03:10 Chicago time), retaking its 40-day moving average, while the August contract gained 0.2% to $14.17 a bushel.

The new crop November lot was 0.1% lower at $12.21 a bushel, while gaining some support at a 0.2% rise to 4,564 yuan a tonne in Dalian January futures in China, being pressed by ideas of good US growing conditions.

"Focus is now looking ahead to record production potential in the US this fall, record production in South America in spring of 2015 and outlook for record global supplies," said Kim Rugel at Benson Quinn Commodities.

"Weather is seen near ideal for US other than rains across the northern Plains interrupting planting," although with US soybean sowings overall running well ahead of average, "any potential crop issues are not seen in the near term".

Stable corn

Indeed, for corn too, there is talk that weather has been so benign that the USDA may, in its Wasde report next week, raise its forecast for the US corn yield, above the current forecast of 165.3 bushels per acre.

Michael Cordonnier, the influential crop scout, is already believed to have raised his forecast to 164.0 bushels per acre, from 162.0 bushels per acre.

Still, downward movement on new crop December futures was blocked by the losses already incurred in trading down to three-month lows.

The December contract in fact edged 0.25 cents higher to $4.54 a bushel.

Besides, farmers are unwilling to sell too much at these lower prices, boosting the cash market basis.

Old crop July corn gained 0.2% to $4.59 a bushel.

Wheat recovery

Did that mean an end to losses for wheat too?

In early deals, yes.

After 18 losses in 19 sessions, the 20th brought small gains in Chicago, of 0.5% to $6.15 a bushel for July delivery, although with a decent northern hemisphere harvest in most countries bar the US coming on tap, the grain faces a tough task to mount a sustained recovery.

Indeed, the revival was viewed as largely technical, given the hugely "oversold" nature of futures after their tumble, which includes losses in the last 10 successive sessions, the longest losing streak in 20 years.

Mind the gap

One factor absorbing chart watchers is a gap in the continuous chart for the July wheat contract stemming from three months ago, from $6.10 -6.16  a bushel, which some believe may provide a potential point where futures can at least stabilise.

Indeed, the contract in the last session "came close to filling the gap down to 6.10 a bushel, which could trigger a dead cat bounce" in prices.

Still, on the fundamental side, CHS Hedging noted that US prices may have to do more work to do on the downside, despite the prospect of a drought-reduced hard red winter wheat harvest.

"US is still uncompetitive with the Black Sea by about 20 cents a bushel," the broker said.

Countering this is a reluctance among growers to sell, especially marked in hard red spring wheat, which saw a rise in basis on Tuesday, and which rose on the Minneapolis futures markets by 0.5% to $6.87 a bushel for July.

Fund action

Still, there remains the fact of the huge, but falling, net long position held by hedge funds to factor in.

"The managed fund corn long remains oversized relative to the last two years, while their wheat long appears increasingly vulnerable given eroding US wheat export prospects and an uptick in North American hard red spring wheat production prospects," Mr Feltes said.

Funds' waning optimism is being seen as a factor in soft commodities too.

In arabica coffee, for instance, "the overall bearishness in agricultural space is doing little to bolster the waning fund interest" in the bean, said Sterling Smith at Citigroup.

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