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Morning markets: charts, dollar and weather weigh on grains

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Wheat

opened Tuesday in Chicago in an intriguing position, technically.

The May contract had, in the last session's 2.9% tumble, surrendered its 20-day moving average.

But it had been stopped by the 50-day moving average, another line closely watched by investors, and kept above 10-day and 100-day lines too.

Could the weave of lines, which tend to offer resistance against prices moving through them, downward or upward, provide support this time?

'Cautiously waiting'

Not a bit of it. The contract lost a further 0.8% in early deals, dropping to $6.46 ¾ a bushel, moving below all these moving average and turning its technical picture even more sour.

In truth, investors in many markets were cautious.

"The effects of rising oil prices on a global economic recovery and stubborn inflation are still keeping many cautiously waiting on the sidelines," IG Markets said.

Shares

lost ground in many, if not all, Asian markets, losing 0.4% in Sydney, 0.2% in Seoul and 1.4% in Shanghai. (Tokyo markets were closed for a holiday.)

The safe haven of the

dollar

ticked 0.2% higher against a basket of currencies as of 08:40 GMT, making dollar-denominated assets such as many crops less competitive as exports.

'Forecast rain relief'

But there were some fundamental reasons to be more gloomy on wheat too.

Sure, US Department of Agriculture attaches overnight restated concerns over the Moroccan crop, hit by the same dryness affecting western Europe, and which they said would necessitate a sharp rise in the country's wheat imports.

But are rains on their way?

"Forecast relief to dryness in southwest Europe and western Canada is weighing on values," Luke Mathews at Commonwealth Bank of Australia said.

In the US, rain has already done the trick in reviving hard red winter wheat crops, as planted in the southern Plains.

'Scouting fields for fungus'

In Kansas, the top US wheat-growing state, the USDA rated winter crop at 53% in "good" or "excellent" health, far better than the 27% last year, if down one point on the week.

In Texas, parts of which saw rains of up to two inches last week, the rating improved to 34% good or excellent, from 33% a week ago, and with the proportion seen as "poor" or "very poor" falling to 38% from 43%.

"Rainfall and warm temperatures helped wheat and oats progress well across most of the state," the USDA said.

In some areas "wet conditions had some small grain producers scouting fields for fungus", the kind of issue Texas farmers must have been dying to have during last year's drought.

Fast sowings

Furthermore, fellow grain

corn

hardly helped by putting in its own 0.8% decline, for May delivery, to $6.58 a bushel.

Wheat, in ample global supply, has been largely reliant on corn, if which stocks are squeezed, for price support, and indeed has fallen back to an atypical discount.

Corn has the excellent US spring conditions, so far, to deal with, promising fast sowings (whether or not these lead to higher yields).

On Monday, University of Illinois professor Emerson Nafziger said that "it's certain we have never before had this many corn acres planted so early" in the state.

That said, in Texas, where sowing does historically start on March 1, farmers had 33% of their crop in the ground as of Sunday, up 13 points on the week, but behind the 37% average.

"Wet weather interrupted some planting in parts of the Blacklands," the USDA said.

'Key reversal down'

Corn was also undermined by its technical picture, having signalled potential weakness on Monday by making highs for the rally in the last session, only to end lower.

"Futures made a key reversal down," Mike Mawdsley at Market 1 said, noting "caution ahead for May corn".

Furthermore, corn prices on the Dalian exchange in China, a country which many investors have been expecting to require further large imports from the US, edged further from last week's record highs, dropping 0.6% to 2,466 yuan a tonne for the best-traded September contract.

Soybeans

, of which China is already the main buyer of US exports, fell 1.2% to 4,468 a tonne on the Dalian, hardly a good sign for the oilseed in Chicago either.

'Shying away from adding length'

Indeed, Chicago's May soybean contract dropped 0.6% to $13.57 ¾ a bushel, continuing to feel its own pressure too from technical factors, after regulatory data revealed that funds' net long position in the oilseed was close to record highs.

That raises questions about how much outstanding, unfulfilled buying pressure remains, besides increasing the risk of a price spike downwards if investors liquidate.

"Right now the size of the fund position is significant from the standpoint, of the speculative trade possibly shying away from adding length because of the existing net long fund position," Brian Henry at Benson Quinn Commodities said.

And the impact could get worse. "If soybeans cannot regain upward momentum over the next couple of days, the size of the fund position will become very significant."

Mr Henry added that more selling could be on its way, saying that "the overbought nature of the May soybean contract indicates that the current, very modest, correction could last for a few more days".

Nonetheless, "the upward move remains intact as long as global demand for soybeans remains intact".

Cotton retreats

Soft commodities felt pressure too, even

cotton

, which rose in the last session after speculators were shown having a historically high net short position in the fibre, raising questions about how much more selling pressure remains.

New York's May cotton contract shed 0.4% to 88.74 cents a pound.

Raw

sugar

was higher, but only by a modest 0.1% to 25.69 cents a pound, and despite a lift by Societe Generale to estimates for the 2011-12 and 2012-13 global surpluses.

By Agrimoney.com

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