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Evening markets: soybeans, sugar bear brunt of selling wave

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A couple of weeks ago,

soybeans

could do no wrong, and grains no right.

Now, the dynamics have turned 180 degrees.

Fundamentally, soybeans presented a bag of reasons for buyers.

Oil World cut its forecasts for the Argentine soybeans harvest for the fourth successive week, and warned of a potential cut to its estimate for Brazilian output too.

The US Department of Agriculture extended its run of daily alerts announcing big US soybean exports this time of 225,000 tonnes to China - 65,000 tonnes of old crop and 165,000 tonnes for 2012-13 delivery.

'Firm basis levels'

The US cash market was supportive too.

"Firm basis levels on old crop supplies of soybeans continue to indicate value" (as they do for

corn

), Benson Quinn Commodities said.

Still, Chicago's best-traded July soybean contract tumbled 1.9% to $14.38 ¼ a bushel, while the new crop November lot closed down 1.1% at $13.40 ½ a bushel.

OK, soybean sowings were shown running historically fast in overnight USDA data, but similar findings hardly put a stop to new crop December corn, which closed up 0.6% at $5.28 a bushel.

'Very profitable'

In fact, the turnaround in the relative fortunes of soybeans and grains is more than a coincidence, with Tuesday witnessing an unwinding of the "buy soybeans, sell corn/

wheat

" spreads which had given the oilseed the lead last month.

"Those spreads have been very profitable and have been put on by funds and other speculators for months," Darrell Holaday at Country Futures said.

"There is a large amount of profit-taking that is occurring on those spreads. It is very evident what is taking place today in the grain and oilseed sector. "

Indeed, funds sold an estimated 8,000 Chicago soybean contracts, while buying 4,000 corn lots and 2,000 in wheat.

Greek tragedy's next act

The triggers for the profit-taking in soybeans were two-fold.

The first was the return of the concerns for eurozone stability amid a Greek struggle to form a coalition government.

Athens

shares

fell 4% to a near 20-year bottom at one point on reports that Alexis Tsipras, the Greek leftist party leader, had demanded that potential coalition partners must support the country tearing up the bailout deal struck with the European Union and IMF earlier this year.

And many risk assets fell, with London shares closing down 1.8% and Paris stocks down 2.8%, while Wall Street shares were 1.0% lower in late deals.

The

CRB

commodities index dropped 0.8% to its lowest close of 2012.

'Technical weakness'

The second catalyst for soybean selling was the prospect on Thursday of the USDA's monthly Wasde report which, in giving the first full estimates for 2012-13, is viewed with some trepidation by investors.

While an issue for all crops, soybeans are particularly vulnerable to sell-down given the record net long position held by funds and speculators.

Selling is further begetting selling thanks to soybeans' deteriorating chart picture, in the face of price declines.

"Soybeans continue to fight the technical weakness that developed last week," Benson Quinn Commodities said.

But unsuccessfully. The July contract closed below its 20-day moving average for the first time since January.

'Tight cash market'

Corn not only had help from the unwinding of the long soybeans-short corn spreads, but continued comment about strong US cash prices.

"The old crop corn continues to find strength from the tight cash market," broker US Commodities said.

"The basis levels continue to soar to record levels. In the eastern Corn Belt, it is now $0.60-a-bushel plus over the July futures contract, and the western Corn Belt basis is $0.30-0.45 over the July lot."

Such strength was helped by rumours of fresh purchases from China.

"There is talk that China bought a couple of cargos of old crop corn and possibly up to five-to-six cargos of new crop corn," Benson Quinn said.

July corn closed up 0.5% at$6.23 a bushel.

Development delayed

Furthermore, as an appendix to the surprisingly strong US corn sowings data for the latest week, to Sunday, investors warned that the next seedings data might not prove so strong.

"Progress will be limited in many areas early this week as they dry out from recent rains," Benson Quinn said.

And the early pace of plantings it not being matched in crop development terms.

"The 32% of corn that has sprouted and 'emerged' still lags behind 2010's 39% and 2004's 36%," Gail Martell at Martell Crop Projections said, with germination and emergence "delayed by persistent cool temperatures in the upper Midwest late in April".

And temperatures this week "are projected to be below normal", falling to 40s Fahrenheit this week, "whereas corn grows only above 50 Fahrenheit".

Too optimistic?

Ms Martell had some cautions for wheat too, and last week's forecast of a 404m-bushel crop in Kansas, noting decreasing soil moisture levels.

"We know from past experience that heat during grain filling is damaging for the yield. A reduction in Kansas production, below the 404m bushel estimate, would not be surprising."

And besides support from fellow grain corn, wheat also gained from the idea that cautionary position closing ahead of Thursday's Wasde means shutting short positions, of which speculators have a huge number.

July wheat closed up 0.5% at $6.15 a bushel in Chicago, and up 0.8% at $6.36 a bushel in Kansas.

'Plenty of sugar available'

Still, not all agricultural commodities out of favour last month were back in vogue.

Raw

sugar

had a trouncing in New York, tumbling 3.2% to 20.37 cents a pound for July delivery, the lowest finish for a spot contract since September 2010, and not only because of the weak external markets.

"Potential increased Indian exports are still weighing on the market," said Nick Penney at Sucden Financial, noting that while there were signs of end-users buying sugar, it was "on a short term basis, mainly Muslim countries acting before the start of Ramadam on July 20".

"We would favour the downside more than the upside as there is plenty of sugar available."

Indeed, a huge delivery against New York's May contract on its expiry a few days ago "showed there is even sugar left from last year's campaign".

Cotton drops

New York

cotton

, particularly attuned as an industrial commodity to macroeconomic factors, fell 0.6% to 86.18 cents a pound for July delivery, the lot's weakest close of 2012.

And

cocoa

dropped 1.3% to $2,326 a tonne for July, with selling by producers, who have been looking for exits, an extra pressure on values.

By Agrimoney.com

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