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Evening markets: grains gain as heat cuts corn yield hopes

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Sure, grain prices couldn't hold on to early highs, which took both December corn and near-term wheat back through $7 a bushel in Chicago for the first time in a month.

(And, after all, we know from recent chances in US Department of Agriculture estimates how significantly high prices can throttle demand.)

But they closed higher nonetheless, as investors made it up with risk assets, after those jitters caused by US and eurozone debt concerns, Chinese inflation worries, UK economic fears, to name but some.

The shift in sentiment, evident in a 1.7% jump in US stocks in late deals, was attributed to healthy results from the likes of IBM and Coca Cola (while Goldman Sachs missed forecasts) and data showing US housing starts last month beating forecasts to touch a six-month high.

And, as an extra help to dollar-denominated commodities, the greenback eased 0.3% against a currency basket, making them more affordable as exports.

Softs soften

Indeed, it looked hard for raw material prices to fall, and certainly assets from


(up more than $150 a tonne) to


(1.9% higher at $97.72 a barrel) notched up gains.

That said, some farm commodities seemed to make heavy weather of helpful conditions, with raw


easing 0.6% to 28.78 cents a pound in New York, for October delivery.

But even though September


dropped 1.8% to 243.85 cents a pound as fears for frost eased in Brazil, many observers remained sanguine.

"Coffee looks lower, but until it closes below 241.45 cents a pound, the 200-day moving average, I cannot bring myself to be an aggressive seller," Jurgens Bauer at PitGuru said.

Ratings tumble

And in grains, buying was spurred by the fears for the US crop condition whetted by data overnight showing a surprise three-point drop in a week to 66% in the proportion of the US crop rated in "good" or "excellent" condition.

This was the biggest drop in three years, to the lowest rating for the time of year since 2008 too.

Adding to concerns was the prospect of more US heat during the sensitive pollination process, assuaged only in part by a wetter forecast heading into the weekend.

One model "now has a massive new heat dome covering the entire Midwest which develops around day 10 and continues throughout the 11-to-15 day [period]," said.

Yield downgrades

Investors rushed for their slide rules to calculate what this might mean for American corn yields, which the US Department of Agriculture currently sees hitting 158.7 bushels per acre.

"Analysts say current ratings point to a corn yield of 157 bushels per acre with this week's heat possibly pulling yields down to 155-156 bushels per acre," Benson Quinn Commodities said.

Certainly, Michael Cordonnier, at Soybean and Corn Advisor, lowered his estimate by 1 bushel per acre to 156 bushels per acre.

From an academic viewpoint, Scott Irwin and Darrel Good at the University of Illinois, said that "the history of corn yields in years with hot, dry conditions in July clearly points to the potential for a below-average yield".

Without favourable conditions in the last week of July and in August, an Illinois average corn yield "in the mid- to low-150s bushels per acre might be expected", below a trend yield of 168.7 bushels per acre".

'Rainfall has been disruptive'

New-crop December corn closed up 1.5% at $6.87 ¼ a bushel in Chicago, while the old crop September lot, already long in silos, lagged, adding 0.3% to $6.98 a bushel.

Still, that was enough to keep a premium over


, which gained 0.6% to $6.93 ½ a bushel for September, attracting some spillover support, plus help from fears for the quality of the European crop, with rains dogging harvest.

"Rainfall has been disruptive over recent days and has slowed [EU] harvest progress," David Eudall, at the UK's Home Grown Cereals Authority, said.

At FCStone's Dublin office, Jaime Nolan noted talk of "localised showers moving across Germany over next 24 hours", when "much of west, central and southern France will see rains"

"Central Europe sees significant rains forecast across Poland, Hungary and Romania adding to delays in cutting there and continuing to fuel bulls quality concerns."

Indeed, closer to the harvest (in)action, Paris wheat jumped 3.0% to E201.50 a tonne for November delivery, with the London November contract gaining 2.4% to £165.90 a tonne.

Too early for soybeans


were the one Chicago major to lose their way, closing down 0.5% at $13.79 ¼ a bushel for August delivery, having earlier hit $14.09 ½ a bushel, a three-month high for a spot contract.

But then hot weather is not yet such a threat to the oilseed.

"Soybean ratings are not yet a concern as August is the big month for soybean yields," US Commodities said.

Indeed, the oilseed was easily eclipsed by


, its rival for farmers' attention in many southern states, which followed a succession of weak closes with a jump the exchange maximum, of 4.0 cents a pound, in New York.

The best-traded December contract closed at 100.84 cents a pound, with the near-term October lot jumping to 101.95 cents a pound, helped by talk that last week's 13% slump had left the fibre "oversold", PitGuru's Jurgens Bauer said.


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