Grains and oilseeds, having bucked their losing streak in the last session, faced the Chicago phenomenon of the Turnaround Tuesday.

This, by repute, sees futures reverse the trend of the previous session – implying losses in store this time.

And sentiment was hardly helped by a small uptick in the dollar, making dollar-denominated exports such as many commodities less appealing, and by falls in Asian share markets.

Japan's Nikkiei index shed 0.9%, as did Hong Kong's Hang Seng, while Sydney stocks lost 0.5%.

Asian retreat

And, signally, the Asian weakness spread into agricultural commodity markets there too.

Crude palm oil futures extended their 2013 retreat – they have risen only in one session so far this year – easing 1.2% to 2,388 ringgit a tonne, depressed by expectations that Malaysian inventories remain high.

Official data on Thursday will show stocks at 2.5, tonnes, a little below November's top of 2.56m tonnes, with lower exports just about balancing a drop in output.

In China, Dalian soybeans eased.

The fall was not much, by 2 yuan to 4,739 yuan a tonne, but did little for sentiment in Chicago, which has seen Dalian prices, and talk of strong crushing margins in China, as a major support to soybean futures.

'Supply risk on the upside'

If that was one depressant to Chicago values, the increasing expectations for South American soybean and corn harvests were another.

Consultancy Clarivi on Monday became the latest commentator to nudge higher its forecast for the Brazilian soybean harvest, by 110,000 tonnes to 83.11m tonnes, ahead of Conab data on Wednesday which look set to be particularly closely watched.

Conab, the Brazilian crop bureau, currently has the domestic soybean harvest at 82.6m tonnes.

At broker RJ O'Brien, which also keeps close tabs on Brazilian crops, said that "we think the current weather pattern suggests supply risk is on the upside".

Chicago soybeans for March eased 0.1% to \$13.87 a bushel as of 08:20 UK time (02:20 Chicago time) looking for their fifth decline in six sessions.

'Subdued outlook'

Grains at least managed gains.

Cargill's Australian AWB grain handling business took a more cautious stance on prices than the likes of Societe Generale.

"We expect international wheat prices and the market to be subdued until there is a clearer picture on the northern hemisphere weather market in March /April this year," AWB's Richard Williams said.

However, one big plus for grains is the prospect on Friday of a slew of US Department of Agriculture data, including the benchmark Wasde world crop supply and demand briefing, US winter wheat sowings data and grain stocks figures.

Not that the data themselves are necessarily expected to be bullish.

But they are expected to be market moving, especially in corn futures, which on the January mega-data day have undertaken limit moves in five out of the last six years.

'Wide range in trade estimates'

And the range of estimates for inventory data, on corn especially, indicates the level of uncertainty over what Friday will produce.

RJ O'Brien's Richard Feltes said: "It is interesting to note wide range in trade estimates of December 1 US stocks—750m bushels in corn, 300m bushels in soybeans and 200m bushels in wheat. 

"The wide range in corn stocks stems mostly from widely divergent trade views on final 2012 corn production - 475m bushels from high to low. 

"I suspect trade will be cautious this week given well known volatility surrounding January crop reports."

'Active buyer'

Another potential plus point for the grains complex is, ironically, the prospect of large selling by index funds expected to sell a stock Chicago contracts as part of the annual rebalancing process, which rejigs portfolio weightings back to those of the index they follow.

This is occurring at a time when speculators have rebuilt a healthy net short position in Chicago wheat.

"The trade is very likely positioned the way it wants to be with the index fund rebalance," Brian Henry at Benson Quinn Commodities said, noting the lack of spread between Chicago and Kansas wheat futures, even though the former faces selling by index funds, and the latter buying.

"Don't be surprised if the short in Chicago proves to be an active buyer of an index fund offer, if it happens at all."

At Commonwealth Bank of Australia, Luke Mathews said that "further speculative short covering is probable in the lead up to Friday's much-anticipated USDA Wasde and winter wheat planting reports".

'Begin to turn the tide?'

And could this spark something of a most sustainable recovery in values?

"Another day of higher price action," after a late flourish took prices solidly into positive territory in the last session, "followed by a firm close could begin to turn the tide a little bit", Mr Henry said.

"The bullish factors in the wheat market remain the oversold conditions and the fund short in Chicago."

There is the prospect of a boost to US exports from lower US wheat values too, with rumours continuing that European buyers are in the market for soft red winter wheat (the type traded in Chicago) while Brazil is also on the prowl for North American milling wheat.

Brazil's usual supplier, Argentine, has suffered a poor harvest, hurt by heavy rains and a plunge in sowings.

Wheat for March added 0.4% to \$7.54 ¼ a bushel, while March corn gained 0.2% to \$6.86 ½ a bushel.

'Global supplies will be trimmed'

Among soft commodities, cotton eased 0.5% to 75.35 cents a pound for March delivery, despite the USDA foreign staff in New Delhi estimating the Indian crop at 25.5m bales, 300,000 bales below the official USDA estimate.

"This suggests global supplies will be trimmed when the USDA releases its official WASDE report this Friday," CBA's Luke Mathews said.

"India will only be a small cotton exporter in 2012-13 compared to the past few seasons."

New York raw sugar, which Morgan Stanley identified as a major winner of the rebalancing process, gained 0.7% to 19.00 cents a pound for March.

"Index fund rebalancing is expected to support values this month, although we argue fund rebalancing is not a reason to develop a longer term bullish view on the commodity," Mr Mathews said.