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Evening markets: wheat leads tumble on pre-data nerves

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Chickens came home to roost in grain markets, creating an unhappy sight for bears.

Analysts have been warning for some time that many crops looked "overbought", both on a technical basis, from looking at charts, and in some cases on fundamentals too.

Wheat

stocks are, after all, on course for a record high at the end of 2011-12.

On Wednesday, some of that overdue selling pressure kicked in.

"Significant long liquidation after the recent strength is the primary culprit the last couple of days, as the market price certainly got out ahead of the fundamentals," Darrell Holaday at US broker Country Futures said.

Pre-report nerves

Why now? The catalyst was seen as the US Department of Agriculture's next monthly Wasde crop report, due on Friday.

"Some of the liquidation from the long side has also been caused by fear that USDA numbers may not change much, and the world wheat numbers could easily be increased," Mr Holaday said.

In the UK, grain merchants at a major European commodities house said: "Ample world wheat supplies and position squaring ahead of Friday's report are today's main drivers.

"Traders need to ensure they are happy with their position going into the report, which means the wheat is being sold after good recent gains."

'Bit of a surprise'

OK, it's not all negative for wheat, with US winter wheat still needing more rain, and Russia "expected to get another arctic blast next week", broker US Commodities said.

"This is a bit of a surprise," and could be a nasty one too if snow cover, which did a good job at protecting winter crops during the last cold snap, has melted.

And then there is the support from disappointing South American

soybean

crops to factor in.

"It is unlikely that the agricultural commodities will lose too much further ground," the European commodities house said.

"People are nervous about the South American soybean crop yield and where the USDA might pitch it. Soybeans should stop

corn

and wheat falling too much further."

Furthermore, there are still some physical buyers in town. Egypt, the top wheat importer, turned up with a tender, after the close of US markets.

Prices drop

But add to the bearish side of the market increased farmer selling, which brokers say has picked up this week in both North and South America, and price weakness was certainly in vogue.

Chicago soft red winter wheat for May, the best-traded lot, closed down 2.8% at $6.39 ¼ a bushel, with Kansas hard red winter wheat for May shedding 2.0% to $6.83 ¾ a bushel.

Minneapolis spring wheat for May dropped 1.2% to $8.08 ¾ a bushel, and the weak pattern was reflected in Europe too.

May wheat lost 1.7% to E205.50 a tonne in Paris, and 0.6% to £165.50 a tonne in London.

Ethanol rebound

Corn at least had the support of a better weekly US corn ethanol production number, up 10,000 barrels a day from the previous week's four-month low to 906,000 barrels a day.

But stocks edged higher too, for a 12th successive week, reaching 22.1m barrels.

And concerns over dry soils for the forthcoming US spring sowings eased a touch with forecasts of rains for the Midwest this weekend.

Corn for May closed down 2.5% at $6.38 ¾ a bushel, with the new crop December lot shedding 1.2% to $5.56 a bushel.

'Logistical nightmare'

Even soybeans fell, although less so, despite perhaps being the most overbought overall.

"The soybean complex continues the strong arm of the complex. This market is severely overbought and due for a technical correction," Mr Holaday said.

But if fears over the Wasde, and its cuts to South American soybean crops, were one brake on the bears, transportation was another.

Benson Quinn Commodities said: "Argentine ports remain a logistical nightmare with up t0 150 ships waiting to load something or other," with Brazil seeing hold-ups too, although the position there us "getting slightly better".

Soymeal vs distillers' grains

At Allendale, Paul Georgy put it so: "There is talk that soybeans are getting strength from Chinese buying as South American deals with port delays."

And "another twist" helping soybean prices is that the reduced supply of distillers' grains now that US corn ethanol production has stepped back from its end-2011 record.

"This is creating more demand for

soymeal

," an alternative elevated-protein feed ingredient, "ultimately supporting nearby soybeans", Mr Georgy said, a link Agrimoney.com indeed noted earlier.

Chicago soymeal for May closed down, but not by a lot, 0.4% at $364.50 a short ton, helping limit May soybeans' loss to 0.6%, to finish at $13.26 ¾ a bushel.

Slumping beans

Soft commodities were largely weak too, with

sugar

feeling pressure from another upbeat forecast for the Brazilian cane harvest this year, of 240m tonnes, from Agroconsult.

Raw sugar for May closed down 0.5% at 23.92 cents a pound in New York, a one-month low for a spot contract.

But New York arabica

coffee

did worse, tumbling 2.4% to 186.95 cents a pound for March, and 2.3% to 188.60 cents a pound for the better-traded May lot.

These closes were 16-month lows, for a spot contract and nearest-but-one contract respectively.

The drop, which takes above 16% coffee's loss so far in 2012, has been blamed on the willingness of Brazilian farmers, expecting a better harvest, to sell into the falling market, and to technical factors, with the breach earlier this week of the 200-cents-a-pound mark a major psychological blow.

If further falls are on the cards, technically, "losses could focus on 181.13-cents-a-pound correction area. Deeper declines could focus on 171.61-cents-a-pound support," Sucden Financial said.

By Agrimoney.com

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