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Evening markets: grains slump as bulls run up white flag

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So much for beginning-of-the-month buying of agricultural commodities.

Instead, it was the negative karma Agrimoney.com highlighted in its morning market report which won out, as even bulls questioned the case for further gains.

For instance, Matthew Pierce said: "As much as I love

corn

long-term, the next couple weeks ahead of harvest offer this market downside potential," urging investors to "look at getting long again" about the $7.22-a-bushel level for Chicago's December contract.

(That marks the 50% retracement of the current rally, a much-watched technical pointer.)

'Mature bull market'

The contract did its best, slumping 3.8% to $7.38 ½ a bushel.

And even that slide didn't make it Chicago's biggest loser, with that honour going to

wheat

, which tumbled 4.0% to $7.15 ½ a bushel for September, and by 3.9% to $7.61 a bushel for the better-traded December contract.

US Commodities mused at the start of trade: "The market remains a mature bull market. The key is how much bull news is dialled in."

The answer seemed "quite a lot" for a rash of reasons.

Poor backdrop

The first was the clouds appearing again on the macroeconomic horizon, where positive US and Chinese manufacturing data were trumped by statistics indicating eurozone factories had gone into contraction last month.

France's manufacturing sector contracted for the first time in two years.

Furthermore, a cut late on Wednesday by Brazil's central bank to its core interest rate, thanks to "substantial deterioration" in the outlook for the global economy, made increasing waves.

OK, Brazilian

shares

rose, but Wall Street stocks turned tail to stand 0.8% lower in late deals, while the

dollar

– that gauge of investor fear – added 0.5% against a basket of currencies.

For dollar-denominated commodities that represents a double dose of bad news, questioning enthusiasm for buying, besides making them more expensive to purchasers in other currencies.

Long weekend

The prospect of the US Labour Day holiday didn't help either.

Investors often prefer to close positions rather than have them hanging over a long weekend, especially when, in corn, it is a sensitive time of year, with harvest ramping up.

"Corn harvest will become much more active over the Labor Day holiday and really kick into gear after next Monday," Darrell Holaday at Country Futures said.

"This will allow a better opportunity to gauge early corn yields."

And these might not be as bad as the hooha surrounding the falling condition rating of the US crop, to 54% in "good" or "excellent" health, might suggest.

"As corn matures, the crop rating always drops," Mr Holaday said, adding that "it should also be noted that 54% good to excellent is not the lowest level in the last 10 years as there were three years below that level".

'Disappointing across the board'

And that is before taking demand into account.

"Weekly US export sales this morning were disappointing across the board and do indicate a general slowdown in activity at the higher price levels," Mr Holaday said.

(Actually, not everyone agreed. Benson Quinn termed them "high enough to satisfy the trade's expectations", while Mr Pierce defended wheat's, at some 370,000 tonnes sold and 610,000 tonnes shipped as "better than for row crops".)

Still, investors did not have to look far for other signs of soft demand, with Mr Holaday pointing out that numbers of eggs set in incubators, a measure of chicken production ahead, proving "consistently lower, down 5-7%, on a year-to-year basis over the last month".

US Commodities flagged Wednesday's US ethanol data, which indicated that "95.4m bushels of corn was used for ethanol last week, versus 97m-99m bushels in the prior weeks", albeit with the decrease potentially down to seasonal maintenance rather than high prices of the grain.

'Simply overbought'

With investors selling off grain wholesale – even Kansas hard red winter wheat, which fell 2.6% to $8.72 a bushel for December despite continued worries about dry weather for sowing in the southern Plains –

soybeans

had little hope either.

The growing season's "dry finish continues to hurt soybeans more than corn", whose yield prospects are set earlier, US Commodities noted.

So soybeans fell a relatively modest 1.3% to $13.43 ½ a bushel for November.

After all the oilseed looked "a market that is simply overbought", after hitting a three-month high on Wednesday, Mr Pierce said.

'Talk of increased production'

The selling was reflected in soft commodities too, including

sugar

, which fell 0.3% to 29.59 cents a pound for October.

"The macro picture is not helping sugar as other commodities are weaker," Nick Penney at Sucden Financial said.

However, he also flagged "talk of the increased production from Northern Hemisphere producers, namely the EU countries and Russia, which would ease any shortfall out of Brazil in the last quarter this year".

While the International Sugar Organisation that world prices of the sweetener would not suffer a dramatic collapse thanks to a 2011-12 production surplus it estimated at 4.2m tonnes, the market was only partially reassured.

'So overbought it isn't funny'

Even

cotton

, something of a maverick of late, eased 0.03 cents to 105.78 cents a pound in New York, for December delivery.

For gains it was needed to go to New York

coffee

, which remained on the boil, making a session high for the 18th successive day (if notching a couple of lower closings during the run).

"Coffee is so overbought it isn't funny, and yet it still goes up," Jugens Bauer at PitGuru said.

"Every dip holds and gets bought."

The bean's strength has been attributed to tightening stocks of beans for delivery against New York contracts, taken as a sign of growers' reluctance to sell, at a time when the bean often has a seasonal upswing, as the peak Brazilian harvest recedes into the background.

The December lot closed up 0.5% at 289.75 cents a pound.

By Agrimoney.com

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