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Morning markets: wheat stages recovery, but corn struggles

Changes in grain market direction typically take three sessions, at least, to act out.

It is telling that corn futures went back to their losing ways after only one, marginally, positive session.

While the US Department of Agriculture, in its much-watched Wasde crop report, did raise the estimate for the corn yield by far less than investors had expected, there is little conviction that the new figure of 167.4 bushels per acre is anything but a milepost on the way to a higher figure, above 170 bushels per acre.

'Not a major game changer'

"Most think the production number will continue to grow," Mike Mawdsley at Market 1 said.

At Citigroup, Sterling Smith said: "It is entirely possible that we will see yields bumped higher again in September."

Another US broker said: "The market already has an idea of what it believes final yield is, regardless of what the USDA wrote down.

"This report was not a major game changer… the bear market may resume."

China outlook

It little helped that the US Midwest weather outlook remains benign, although "more rains are needed in north western areas", according to MDA.

The six-to-10 day and 11-to-15 day outlooks have in fact turned wetter.

And, looking abroad, the CNGOIC crop bureau constrained disappointment over China's corn production prospects, which have been dented a little by dryness on the North China Plains.

The official think tank foresaw losses of 1m-2m tonnes in Henan province to drought, but still forecast some rise in national production this year, to 222.3m tonnes.

In Chicago, December corn fell 0.1% to $3.68 ½ a bushel.

'Biggest soybean statistic'

For soybeans, the Wasde was undoubtedly negative, lifting the estimate for domestic 2014-15 carryout stocks to 430m bushels, a figure above market expectations.

For world inventories, the estimate was only nudged 310,000 tonnes higher to 85.62m tonnes, but this was still deemed by one broker the "biggest soybean statistic to consider" given that it means that "the world stocks-to-use ratio is over 34%".

"Consider that with the fact that South America still has a major price incentive to plant soybeans over other products this year."

For growers looking at 2015, it may already "make sense to get more aggressive on soybean hedging now".

'Production understated'

Furthermore, the USDA did not trim the estimate for domestic stocks at the close of this season (at the end of the month) as investors expected, but instead hinted, through a negative so-called residual number, at an upgrade ahead to the 2013 harvest.

"In essence, USDA is saying that last year's crop production was understated by 94m bushels, or 1.3 bushels per acre nationally, which means the 2013 yield was closer to 44.6 bushels per acre than the [current official estimate of] 43.3 bushels per acre," said Kim Rugel at Benson Quinn Commodities said.

That said, while there are expectations too of further upgrades to the soybean yield estimate, there are also ideas that the USDA is being downbeat on consumption too.

"We do take issue with lack of changes in the US soybean crush numbers in light of the very strong soymeal exports," Citigroup's Sterling Smith said.

Stronger exports

Indeed, the estimate for US soymeal exports in 2014-15 was unchanged, at 10.7m tonnes, despite a strong pace of forward sales.

The US has already sold 4.14m tonnes of the feed ingredient ahead for 2014-15, which starts for the commodity in October.

A year ago, it had sold 1.45m tonnes forward for 2013-14, with the recent increase seen largely down to uncertainties over supplies from Argentina, the top exporter of soybean products, where farmers are hoarding crop as a hedge against a declining currency.

Meal resilience

Soymeal for December added 0.2% to $344.00 a short ton in Chicago, helping soybeans themselves for November edged 0.5 cents higher, taking them to $10.60 a bushel.

Soyoil for December eased 0.1% to 34.96 cents a pound, weighed by a fresh retreat in rival vegetable oil palm oil by 0.4% to 2,179 ringgit a tonne.

Data showing annual industrial output growth in China, the top importer of soybeans, running at 9% last month were a little shy of expectations, and caused alarm in some industrial commodity markets.

However, Chinese soybean futures for January performed strongly overnight, closing up 0.8% at 4,610 yuan a tonne.

'Let someone else buy it first'

It was wheat which managed notable gains in Chicago, adding 0.6% to $5.41 a bushel for September, although only after notable losses in the previous four sessions.

And there is a touch of concern in Ukraine too, where markets are awaiting to see what happens when a Russian aid convoy attempts to cross the border into Ukraine.

Kiev officials have said that the convoy will be denied entrance, amid concerns it is an excuse for further Moscow intervention in Ukraine.

Wheat prices have been acting somewhat as a barometer for Russia-Ukraine tensions, given the region's status as a large source of competitively priced supplies.

Sentiment otherwise on the grain remains soft.

"Wheat is bordering on being oversold, but the technicals are weak and harvest of the US spring wheat crop will continue for the next month and half. I'd let someone else buy it first," Benson Quinn Commodities said.

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