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Evening markets: rain, macro fears, sink grains, cotton, soy

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"It is turnaround Tuesday," said US Commodities, referring to that phenomenon of Chicago lore that strong trends on the first day of the week reverse themselves in the second.

That meant a stalling in the grain price rally over the previous week.

A stalling and nose dive in the case of

corn

, which for July ended the live trading session down 5.7% at $5.97 a bushel, and earlier came just 2 cents from falling the maximum allowed by the exchange.

The grain's problems were in part technical.

"The breakdown in the corn bull spreads has been a very negative price signal since Sunday night," Darrell Holaday at Country Futures said, referring to the narrowing in the premium between Chicago's nearer and further away contracts.

"The bull spreads were giving up ground even on a higher market. That is not positive."

Dry soil

However, fundamentals played a part too, after the US Department of Agriculture reported the US corn getting off to its best start since 2007, and, according to Allendale, boasting the "fifth highest 'good-to-excellent' conditions rating in the last 26 years", of 77%.

That might not have been so bearish if the mounting weather threats had held.

After all, as Benson Quinn Commodities noted, "recent soil moisture studies are showing significant decreases in many key regions.

"In fact, the current overall ratings for soil moisture are typically not reached until the third week of August.

"US soil moisture is the seventh lowest on record for this time of the year."

Rains, or not?

But some forecasters put a bit of extra moisture into the US outlook.

"Midday weather models a little wetter for the Midwest and that lead to another leg down in prices at midday," Mr Holaday said.

Not all forecasters, it has to be said. WxRisk.com, for instance, said that the eastern Corn Belt was still at risk, with models showing that "not much rain falls from the cold front over southern and eastern Iowa, all of Missouri, eastern Kansas, Illinois, Indiana, Michigan, Ohio and Kentucky".

Sure, "some small areas" over Missouri eastern Iowa and the eastern Corn Belt do see rainfall amounts up to 1 inch.

"But given the amount of heat that is coming and the fact that the rains are still a week away, rains up to 1 inch cannot be considered significant rainfall."

Left holding the baby

Still, if investors needed another reason to sell old crop corn, it was the risk of being left with a whole load when the ample 2012 harvest begins.

"Nobody wants to get caught holding old crop inventory into the new crop with the large discount that the market has in place," Mr Holaday said.

The new crop December lot fell a relatively small 3.4% to $5.22 a bushel.

Of note, however, was that both old and new crop contracts gained in the 45-minute aftermath (what might be called "extra time" in soccer parlance) between the closing of live trading and the end of the electronic session. (Confusing, isn't it.)

The July contract ended that at $6.01 ¼ a bushel, down a more modest 5.0% from Monday's close, with the December lot at $5.24 ¾ a bushel, down 2.9%.

'Wiping out spring drought'

Of course,

wheat

was no help to corn either, falling 2.6% to $6.85 ½ a bushel for July in the live trading session, and staying there or in extra time, sapped by the evaporation of its own weather scares.

SovEcon told Agrimoney.com that, while there were concerns over grain crops throughout Russia thanks to dryness, there was the potential for them to recover if rains arrived.

And arrive they look set to do, in some regions, according to forecaster Gail Martell, who forecast that the ridge of high pressure responsible for recent weather stress "is expected to move east into Kazakhstan, Siberia and Urals in the coming days.

"Near normal temperatures would resume in Russia and Ukraine, along with a chance for heavy, soaking rain."

Already in Ukraine, "some areas like Kryvyi Rih, a key wheat area in the east, have caught up to normal, the recent rains wiping out spring drought", Ms Martell said.

Wheat for July fell 1.9% to $7.02 a bushel in Kansas, in Paris by 0.9% to E214.50 a tonne, for November delivery, and by 1.0% to £158.80 a tonne in London, also for November.

Macro fears

Nor were

soybeans

on top form, depressed by wheat, which had been leading the market, besides by fresh broader market jitters which tempted speculators, who have large net long position in soybeans, to withdraw more money.

Hopes for a solution to the eurozone crisis waned, while late on, Fitch scared investors by downgrading its credit rating on Japanese government bonds.

As a negative for prices of all

dollar

-denominated exports, the greenback stood 0.7% higher against a basket of currencies in late deals.

Order cancellations?

Soybean specifically, there are fears too for the resilience of Chinese imports which upbeat comment from Oil World could not eradicate.

Darrell Holaday flagged that Chinese has "cancelled some oil and other commodity purchases", and noted "rumours of soybean cancellations. But there is no confirmation at this time".

And the US data overnight unveiled a record US sowing pace, with 76% of the US crop in the ground as of Sunday, compared with an average of 42%.

Soybeans for July ended the live trading session down 2.1% at $13.82 ½ a bushel, the lowest finish for a spot contract since March.

The new crop November lot ended down 1.8% at $12.82 ¼ a bushel, the lowest close for the lot itself since February.

'Bulls have lost an ally'

Turnaround Tuesday does not, however, seem to apply in New York, or the day might have bought a revival in

raw

sugar

futures.

No way. The July lot closed down 2.9% at 19.80 cents a pound, the first finish for a spot contract below 20.0 cents since August 2010.

Macroeconomic fears mean "the sugar bulls have lost an ally in the speculative commodity bull arena", Thomas Kujawa at Sucden Financial noted.

And, technically, the fall below various key areas, including the 20.0-cent level itself, only fuelled further selling, whizzing up a vicious circle of liquidation.

'Next stop, limit down'

Still, if sugar bulls felt out of sorts,

cotton

did even worse, tumbling the 3.0 cent daily limit to close at 74.52 cents a pound for July delivery – the lowest close for a spot contract since February 2010.

Mike Stevens, the veteran Louisiana-based cotton analyst, said the decline reflected "sharply lower prices" overnight in China, the top producer, consumer and importer of the fibre,

And "sluggish textile consumption and world economic showdown is causing a less-than-optimistic outlook coming out of China".

The rising dollar and "weak outside markets discouraged cotton bulls following Monday's late attempt at recovery.

"Once prices started to slip, sell stops triggered when cotton moved into new contract lows – next stop, limit down," Mr Stevens said.

By Agrimoney.com

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