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Evening markets: corn rally stumbles - to soybeans' benefit

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What goes, rocketing, up must come down. By a little, anyway.

Corn had plenty of factors egging it on to set a yet higher record. It was a risk-on day in financial markets, after all, with shares posting gains.

And commodity markets had help both from rising inflation fears, which drove gold and silver to record highs, and a weaker dollar, or rather, stronger euro, which rose amid firm expectations of that the European Central bank will on Thursday lift interest rates.

A weaker dollar, which fell 0.5% against a basket of currencies, makes assets denominated in it, including major agricultural commodities, more competitive as exports.

More exports

There was some helpful corn-specific news too, with the US Department of Agriculture announcing, through its daily reporting system, export sales of a further 101,600 tonnes of the grain to an "unknown" importer, sparking talk that China had been dipping in for more supplies.

Still, Benson Quinn Commodities summed up the views of many in saying the corn market is "technically overbought, after making new all time record high at $7.70 ¾ a bushel yesterday", spurred by last week's data showing US inventories of the grain 170m bushels smaller than had been thought.

And US Commodities cast doubt on rosy pronouncements over the profitability of corn ethanol manufacturers even at these prices, saying "ethanol plants in the west [of the US] are now at losses after the recent rally".

Safety first

But the real catalyst to selling was the prospect of yet another set of important USDA numbers on Friday – the flagship monthly Wasde report on global crop supply and demand.

This will offer investors their first chance to see how the USDA, the world's benchmark in agricultural numbers, sees those weak inventories panning out for the rest of the 2010-11 crop year, which ends in August.

The market believes that the USDA will cut its estimate for America's year-end corn stocks by nearly 100m bushels to 586m bushels. But will it?

Many investors were taking no chances, sitting on gains of more than $1 a bushel in less than a week, and took profits, sending corn futures for May delivery down 0.5% at $7.63 a bushel in Chicago.

Indeed, funds were estimated sellers of some 9,000 contracts on the day.

Spreads reversed

This was a help to

soybeans

, at least, which has been the butt of "sell soybean, buy corn" spreads, which lifted the oilseed as they were unwound.

Indeed, Chicago's May contract closed up 0.2% at $13.76 ½ a bushel, the first rise in four sessions, despite a 1.9m tonne upgrade by Conab, Brazil's crop bureau, to its estimate for the domestic soybean harvest.

And the oilseed has its own tight stocks issue to contend with in Friday's Wasde report, which has been somewhat overshadowed by the corn storm, as well as a slip in export demand.

Even so, new crop soybeans continued to lose ground to corn in the battle to attract sowings in the spring battle for acres. November soybeans fell 0.2% to $13.76 ¼ a bushel, while December corn added 0.1% to $6.57 ½ a bushel.

Rain on the Plains?

As for Chicago

wheat

, this followed its grain partner, corn, ending down 0.5% at $7.82 ¼ a bushel for May delivery.

In part, this was down to grains moving in line, with the prospect of livestock farmers filling troughs with wheat rather than corn linking their fortunes to some degree.

However, wheat also had idiosyncratic issues, with some prospect of rain reaching dry US hard red winter wheat crops at last.

"The European weather model is indicating that this weekend's [rainy] system will dig in further south in the hard red winter areas," Darrell Holaday at Country Futures said.

"The [US] global forecast system [GFS] model overnight did not agree with the change, but the midday model did move a little more in agreement with the European model."

In Kansas, where hard red winter wheat is traded, the May contract lost 1.1% to $9.39 ½ a bushel.

Dry Europe

Against this background – weak Chicago prices, a stronger euro - a poor day for Paris wheat futures might have been expected, but for one thing – Europe's own dry weather concerns, which are starting to gain increased attention even in the US.

Minneapolis-based Benson Quinn said: "Western Europe is dry and warm for the next two weeks raising some concern for winter wheat crops in France and Germany."

Paris wheat for May edged 0.1% higher to E250.50 a tonne. London's May contract, helped by weaker sterling, gained 1.0% to £206.00 a tonne

'Please explain'

Among soft commodities

cotton

had a flyer, closing up the exchange maximum of 7.0 cents in New York at 208.06 cents a pound for May delivery.

The rise was attributed to closing of short positions ahead of Friday's report, although many analysts have given up trying to find reasons for the fibre's volatile day-to-day moves.

Referring to the previous session, Jurgens Bauer at PitGuru said: "Cotton went from limit down to limit up. Please explain that to me."

'Safer to sell'

Sugar

lost 3.1% to 26.71 cents a pound in New York for May delivery, a move many found equally inexplicable on fundamental grounds, although the ramp up of the Brazilian cane harvest will be bringing more of the sweetener onto international markets.

"It still seems safer to sell a rally than buy a dip at present," Thomas Kujawa at Sucden Financial said.

Cocoa flew the flag for bulls at 0.8% above ground level, at $2,999 a tonne for May delivery, as the surrender by Laurent Gbagbo of Ivory Coast's presidency, to the UN-backed Alassane Ouattara, failed to be enacted as expected.

By Agrimoney.com

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