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Evening markets: softs harden, while grain futures pull back

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Typical. You give grain investors what they have been clamouring for, and they go sell the stuff anyway.

The US Department of Agriculture said that China had indeed bought American

corn

- 900,000 tonnes of the stuff (with a further 292,000 tonnes of the grain booked to "unknown" viewed as heading to the East too).

The rumour that drove corn futures up the exchange limit on Tuesday was confirmed, and commentators mulled that more could be coming.

"This trade is important because of the tightness of US corn supplies and shows that one of the world's biggest consumers and second largest supplier of corn is upping its import pace," grain traders at one of Europe's biggest commodities groups said.

In the US, Richard Feltes at broker RJ O'Brien said: "One thing is for sure, and that is that the Chinese are developing a pattern of buying corn on hard dips."

Chicago's December corn contract looked like staying "well supported above the $6.00-a-bushel area until we're more confident on 2011 US corn yield and see easing of domestic corn basis".

Trade balance

But that thesis was beginning to look in doubt in early lives deals, as the contract touched $6.22 a bushel, down 3%, on selling deemed spurred by "buy the rumour, sell the fact" thinking.

Data showing a decline in US ethanol production last week, of 3,000 barrels a day to 860,000 barrels a day, did not help, although downtime at biofuels plants is suspected to be largely behind a string of soft output numbers. (See basis comments below)

External markets were testing too, with

shares

and

oil

easing on some other trade data involving China, showing both exports and imports slowing last month, so signalling economic slowdown.

"Outside markets have made it difficult for these markets with the US

dollar

rallying and pressuring much of the commodity sector," Darrell Holaday at Country Futures said. (The dollar was back to unchanged later on Thursday.)

'Unheard of'

What was credited for corn clawing back most of its losses, to end down 0.4% at $6.38 ¼ a bushel, was the basis bit of Mr Feltes' proposal.

The observation of strong cash prices for corn, which should underpin futures too.

"Basis levels in the southern half of the Midwest and the Plains remain very strong as the demand in the eastern Midwest from ethanol plants and the deficit in the southern Plains is driving cash price levels higher relative to the futures," Mr Holaday said.

At Decatur, Illinois, "the corn crushing capital of the world", getting through 1m bushels a day, plants are bidding $0.16 a bushel above December futures, as opposed to the discount of $0.15-20 a bushel typically seen when prices are under pressure from harvest supplies, Powerline Group reported earlier in the week.

"This is unheard of," Powerline said.

'No relief in sight'

With corn stronger,

wheat

recovered some composure too, if only pulled up by its atypical discount to its rival grain.

Wheat's own fundamentals look poor, as attested to by a series of commentators.

Chicago's December lot recovered from intraday losses of more than 3% to end at $6.18 a bushel, down 1.5% on the day, and limiting its discount to corn to 20.25 cents a bushel.

It gained some support from forecasts of an end to rain relief in the US southern Plains which has not relieved all areas satisfactorily as regards sowing hard red winter wheat.

"After the recent drink, there is no relief in sight for needy hard red winter wheat regions," GrainAnalyst trader Matthew Pierce said, adding that "temperatures will remain above average for the region" too.

Much of the clawback in wheat came too late to spare European contracts, with Paris wheat for November closing down 1.5% at E183.00 as tonne, not so far off its day low. Ditto London wheat for November which ended down 0.8% at £146.20 a tonne.

Acreage talk already

Back in Chicago, soybeans did the best gaining 1.2% to $12.57 a bushel, continuing to gain support from a surprise USDA trim on Wednesday to estimates for the domestic yield, while Goldman Sachs restated a belief that futures in the oilseed would outperform.

"The absence of an increase in yesterday's US soybean yield is providing good buying on any price breaks," Mr Holaday said.

That beat even

cotton

, which put on a better showing after coming under pressure in the last session from a USDA upgrade to world supplies.

"Demand from China should prevent cotton prices from dropping below the 100-cents-a-pound mark on a lasting basis," Commerzbank said.

"Furthermore, cotton's poorer price performance compared to other agricultural commodities, like corn and soybeans, could mean that the acreage is being reduced next spring and the crop is smaller accordingly in the coming year."

New York's December lot closed up 1.0% at 101.56 cents a pound.

'Question marks'

Still, New York raw

sugar

was stronger still, jumping 3.5% to 26.91 cents a pound for March delivery, with both technical and fundamental reasons cited for the rally.

"The chartists will tell you it's no surprise as we have a breakout from the recent medium-term downtrend," stemming from August, Thomas Kujawa at

However he also noted that "there does seem to be thin producer hedging around, potentially a sign that output may not be as abundant as thought.

"Whilst we do expect surplus from India and Thailand there are some question marks on timings due to bad weather and politics."

'Market is nervous'

Indeed, softs trader Jurgens Bauer too highlighted concerns over the flooding in Thailand, the world's second biggest sugar exporter, which may yet prove more serious to cane areas than had been thought.

"Sugar is up big on concern over flooding in Thailand. News services are issuing conflicting reports, but obviously the market is nervous," he said.

Coffee

gained too, up 3.6% at 237.65 cents a pound in New York for December delivery, a rise deemed linked to the expiry on Friday of options, often a period of high volatility.

By Agrimoney.com

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