Can grains and soybeans hold their gains this time?

In the last two sessions, Chicago's main crops have managed early gains, only to close lower.

And on Friday too, they started off cheery enough – but for how long?

Especially when there was something of a negative hanging over investor sentiment in that hopes are fading of the US avoiding falling over the fiscal cliff, despite President Barack Obama breaking off a holiday in Hawaii to host talks between warring Democrat and Republican negotiators.

China hopes

Agricultural commodities did have some things going for them, even if many of the pointers were hardly huge positives.

One was in the macroeconomic sphere, that even if the US, if politicians cannot agree on a budget, faces a package of measures deemed likely to tip it back into recession, hopes for China are improving.

Analysts believe data next week will show that China's factory activity in December expanded at its fastest pace in eight months, reinforcing ideas of economic revival at a time when a new regime is expected to focus on growth prospects.

Such thinking was, in early deals, credited with supporting London copper, one of the many commodities, along with the likes of soybeans, rubber and cotton, in which China is a big buyer.

'Funds at best modest sellers'

Other support was technical, if just the idea that the end of month, quarter, year profit-taking which appears to have been a big factor in recent price falls may have run its course.

"Wheat did manage to settle well off the lows in the last session as there was some profit-taking on short positions late on," Brian Henry at Benson Quinn Commodities said.

"Funds were at best modest sellers of wheat on the day."

Technical floor?

And there is some idea that a technical floor has been reached which might act as a rallying point for a price revival.

Mike Mawdsley at Market 1 said: "The \$7.65-a-bushel mark is a 62% retracement back down from the entire rally this year, in the March contract in Chicago, and was hit on Thursday," pretty much marking the day low before the late recovery.

"Patience," he urged investors.

"Funds are now short in the wheat market," raising questions over the willingness to pile on further short positions, while "our prices hit the lowest level in the world", boding well for export demand.

"US origin is now the more competitive, all the more as the dollar is weakening against the euro," France-based Agritel said.

Not the best time…

Still, now may not be the time when this competitiveness becomes a driving force.

"Although US wheat is competitive into many destinations, the last couple weeks of December aren't typically the best weeks to over analyse wheat demand going forward," Benson Quinn's Brian Henry said.

More will be known later when the US Department of Agriculture releases weekly US export sales data expected at 500,000-700,000 tonnes in wheat.

As of 09:15 UK time (03:15 Chicago time), March wheat was 0.7% higher at \$7.77 ¼ a bushel in Chicago, recovering from its six-month low of the last session.

'Rationed enough'

There appears less hope of a pick-up in US corn exports, with weekly sales expected to come in at 100,000-300,000 tonnes in data later.

At Country Futures, Darrell Holaday noted a "market focus on a very poor US export pace from September to December – the worst in 40 years - at 241m bushels.

"The market seems satisfied at this time that the high price levels have rationed enough export demand to make it through the current marketing year," he said, even while questioning this assumption.

Ominous stocks

Still, technically, while Chicago's March lot hit a five-month closing low in the last session it did avoid hitting the intraday five-month low of \$6.87 ½ a bushel, one straw for bulls to clutch on to.

The grain faces the prospect of more data later too, with US weekly ethanol production statistics.

"Weekly grind remains steady, but increasing stocks look ominous along with weak ethanol prices heading into the winter driving season," Mr Henry said.

An idea of livestock demand will come after the close, in the USDA hog and pigs report.

For now, corn for March was 0.5% higher at \$6.95 ¼ a bushel.

Flashback

And that helped Chicago soybeans off the leash too, which gained 0.7% to \$14.24 a bushel for March delivery.

Weekly US export sales data may provide an unfortunate reminder, in showing up the near-1.0m tonnes of order cancellations announced last week through the USDA's daily reporting system.

Even so, weekly export sales are pegged at 400,000-600,000 tonnes, not too far behind the 629,900 tonnes the week before.