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Wheat extends longest tumble since 1994. But cotton revives

If there is a day for wheat to stage some sort of a recovery from its longest losing streak in two decades, then today looks as good as any.

Tuesdays have a reputation for bringing turnarounds in Chicago, if only temporary ones.

And Chicago sure has a strong trend to reverse, with the best-traded July contract closing lower on Monday for the ninth successive session for the first time since March 1994.

(It was also the 17th lower close in 18 sessions.)

'Too little, too late'

Furthermore, there is some fundamental cause for traders to get a little more excited over the grain, with US Department of Agriculture data overnight showing that the heavy rains in the southern Plains have yet to cause much of an impact in terms of reviving winter wheat condition.

The proportion of US winter wheat overall rated "good" or "excellent" stayed at a lowly 30%.

Has the precipitation come too late? USDA scouts in Oklahoma said that, in the panhandle and south west areas, rainfall was "unfortunately too late to revive the winter wheat crops and too little for much improvement to subsoil moisture".

In fact, in Kansas, the top wheat-producing state, the proportion of crop rated poor or very poor nudged 1 point higher to 62%.

'Concern is growing'

Meanwhile, harvest time rains carry the threat of bringing quality downgrades to a crop for which current reports are already mixed, although the stress from drought is generally seen as reflected in firm protein levels.

"Early hard red winter wheat yields in northern Texas are reportedly anywhere from 5-25 bushels per acre," CHS Hedging said, noting that the poor crop was already raising some fears over a knock-on effect for the next crop.

"Concern is growing over poor seed quality for next year," the broker said.

Besides, there are still jitters over weather in the former Soviet Union, which is proving too wet in parts of Ukraine, and too dry in parts of Russia.

Export data

Furthermore, on demand, US wheat exports in the week to May 29, as measured by inspections, were a respectable 514,667 tonnes, if only taking the total for 2013-14 (with two days to go) to 31.25m tonnes, 1m tonnes below the figure the USDA has forecast for the season.

Still, orders are not exactly free flowing, when US prices are still above those in other geographies.

"End users may be providing some bids on lower trade, but haven't been inclined to be aggressive buyers," said Brian Henry at Benson Quinn Commodities.

"Cash isn't offering incentive to the trade to buy futures."

'Funds liquidating'

And, technically, while there is plenty of comment on the "oversold" nature of the US market, that is not stopping hedge funds selling down further their net long in wheat derivatives, a position no longer looking so profitable.

Given that prices are below all major moving averages, that suggests heavy losses to investors who have held on.

"Funds were estimated sellers of 3,000 Chicago wheat contracts on the session and continue to liquidate long positions in Kansas City and Minneapolis," Mr Henry said.

'More inclined to dump wheat'

At Chicago broker RJ O'Brien, Richard Feltes urged investors to "be mindful that managed futures as a sector has lost money the last few years including 2014 year to date, thus their tolerance to watch losing positions post additional losses is limited at best".

"Importantly, managed fund longs in corn and wheat are well above late-May levels of the last two years," while at a similar level in soybeans.

"I conclude that managed funds will be more inclined to dump wheat and corn longs in the coming days than cutting their soybean longs, which are not oversized relative to the last two years."

Certainly, in wheat, Chicago's July soft red winter wheat contract dropped 0.4% to $6.18 a bushel as of 09:30 UK time (03:30 Chicago time), with Kansas City hard red winter wheat for July eased 0.3% to $7.16 a bushel.

'Astronomical condition'

Corn was indeed lower too, by 0.6% to $4.62 a bushel for the July contract, and by 0.7% to $4.55 a bushel for the new crop December lot

The overnight USDA crop progress data hardly gave funds much cause to buy, with planting 95% complete as of Sunday, in line with the average, and the proportion rated "good" or "excellent" at 76%, a figure above expectations and termed "astronomical" by Benson Quinn Commodities.

"Given this data, the only reason for the market to rally would be to separate traders from their margin money," Mr Henry said.

The US export data were a little soft too, at 976,061 tonnes, below the weekly pace needed to meet USDA forecast for the full 2013-14.

Too much of a good thing?

And US growing weather has been seen as broadly favourable, and is expected to continue so.

"There were some isolated areas that received up to 6 inches of rain over the weekend in the northern Corn Belt and probably will be switched" to other crops, CHS Hedging said.

"But in general the moisture was welcome in the Midwest."

In Iowa, Mike Mawdsley at Market 1 said that "rain makes grain. Sometimes it makes ponds.

"Some totals around my local area were 4, 5, even 6+ inches. Now we hope no more rain falls until those ponds drain away."

Rapid planting

Even soybeans dropped, little helped by USDA data showing 78% of the US crop planted, up 19 points week on week, and ahead of the average of 70% (besides beating market expectations).

Chicago's July contract fell 0.7% to $14.90 a bushel, and the new crop November lot by 0.4% to $12.25 a bushel.

The oilseed was little helped by a fall of 0.7% to 4,556 yuan a tonne in the January soybean contract on China's Dalian exchange overnight.

Meanwhile, Safras e Mercado has pegged Brazil's 2014-15 soybean crop at 93.5m tonnes, above the 91.0m tonnes the USDA has pencilled in.

That said, the consultancy was more downbeat on the newly harvested crop, putting it at 86.6m tonnes, below the USDA's 87.5m tonnes.

And, on soyoil, they reckoned that increases in the biodiesel mandate would lift consumption to 2.24m tonnes this year and 2.7345m tonnes next year, from 1.95m tonnes last year, besides reducing exports of some 1.3-1.4m tonnes a year.

Cotton revives

Among soft commodities, cotton rose 1.1% to 87.42 cents a pound for July delivery after the USDA data showed US plantings remaining behind the average, at 74% complete compared with the typical 81%.

The lag was marked in drought-hit Texas, the top US cotton-producing state, where sowings were 13 points behind normal, at 62% finished.

And the condition of the Texas crop which has been seeded, while better than last year, isn't great, with 35% rated "good" or "excellent" by USDA scouts in their first rating of the year.

Furthermore, there is some expectation of a return drier weather ahead.

Evening markets: June starts for ags where May left off...
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