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Evening markets: soybeans swamped by fund liquidation wave

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JPMorgan's $2bn trading loss didn't end up being the only macro negative markets had to deal with.

China came out with some weak data (by Chinese standards anyway). The 9.3% industrial production growth which the country recorded last month was the weakest since May 2009, while investment in fixed assets grew at its slowest pace in nearly a decade.

Consumer price inflation was, at 3.4%, a little higher than market forecasts…

"Economic data out of China was negative overnight," Darrell Holaday at Country Futures said.

"And the market that struggles on news like that is the

soybean

complex."

Huge long position

After all, China is the top buyer of the oilseed (and was presumed the buyer of 139,500 tonnes of US soybeans announced through US Department of Agriculture's export alert system).

And that is not the only reason that soybeans might suffer on a day like this.

"Don't forget managed money has a record long position in soybeans," Paul Georgy at broker Allendale said.

Sure, the oilseed came out the most bullish, by a mile, from the slew of USDA data released on Thursday, including the first estimates for world crops in 2012-13.

"The USDA report showed that soybeans are needed to remain near the current prices in order to ration supplies," US Commodities said.

But "have to realise that funds are heavily long soy positions, and quakes in the economic sector for funds could cause the soy market to become unstable".

'Calls for more regulation'

Indeed, investors were only encouraged to close positions in riskier assets - funds were estimated to have sold 12,000 soybeans contracts on Friday - by the clamour for regulatory tightening encouraged by JPMorgan's trading losses.

"The news has reignited calls for more regulation of the banking industry and proprietary trading," Benson Quinn Commodities said.

Furthermore, there were some doubts that Thursday's USDA data were really so supportive after all, being based on some assumptions questioned by a range of commentators.

Soybeans for November tumbled 2.8% to $13.21 ½ a bushel, while the best-traded July lot plunged 3.4% to $14.06 a bushel, down more than $1 from its May 2 high.

'Cash will still be king'

Indeed, ironically, corn, which came out of the USDA data covered in bear marks, such as a forecast jump of more than 1bn bushels in US stocks coming up in 2012-13, came out better than soybeans.

This is in part down to questions on corn too among the USDA data, and ideas that the department might have been a little generous on its forecast of a record yield of 166 bushels per acre.

But also, speculators have already got a stack of selling in the grain out of the way, in expectation of a crop rebound, meaning less pressure on this score.

Furthermore, there is still plenty of comment about the "on fire" US cash market.

"We believe cash corn will still be king for several weeks as supplies will be tight until new crop corn can be harvested," Mr Georgy said.

'Elevators bidding up for corn'

US Commodities said: "Basis levels are giving the story that old crop corn is harder to get.

"Elevators are bidding up for corn, some ethanol plants are having to close because they cannot get the desired corn, and China seems to be in need of corn with our strong exports."

China was presumed the buyer of 300,000 tonnes of corn exports also announced by the USDA on Friday.

Corn fell, but less so, down 1.1% to $5.81 a bushel for July delivery, and 0.4% to $5.05 ¼ a bushel for the new crop December contract.

The new crop soybean: corn price ratio tumbled from 2.68 to 2.62 in one session.

'Nice shot in the arm'

It was wheat which actually emerged best of Chicago's big three from the debris, helped by what were seen as not-as-bearish-as-expected USDA estimates on Thursday.

"Wheat did have a more neutral report and the increase of world feed usage was definitely a nice shot in the arm," US Commodities said.

Benson Quinn added: "The wheat market will struggle with harvest pending, but declining global ending stocks on increased feed usage and lower 2012-13 production estimates coupled with short fund positions offer underlying support."

The fact that speculators were short in the grain – meaning closing positions meant upward pressure on prices – helped too in limiting the decline in Chicago's July contract to 0.7%, leaving it at $5.97 a bushel.

In Kansas, where speculative shorts are not such an issue, the July lot closed down 1.2% at $6.10 a bushel.

Euuropean contracts did better, helped by euro weakness, with Paris wheat for November ending up 0.4% at E196.25 a tonne.

Softer softs

Liquidation was evident in soft commodity markets too, including raw

sugar

, which closed 1.1% lower at 20.22 cents a pound in New York, the lowest finish for a spot contract since August 2010.

The sweetener faced extra pressure from a sanguine outlook for world supplies from the International Sugar Organization.

New York

coffee

for July dropped 0.8% to 177.15 cents a pound, pressed by continued liquidation from Brazilian producers, cushioned somewhat from lower prices by the weakened real.

But

cotton

fared worse, continuing to feel the pressure from the USDA's forecasts on Thursday of record inventories at the end of 2012-13, of more than 70m bales.

The July lot tumbled a further 3.5% to 78.97 cents a pound, the weakest finish for a near-term contract since July 2010.

By Agrimoney.com

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