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Morning markets: grains ease awaiting next slug of US data

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Seconds away, round two.

The first day of the US Department of Agriculture's annual outlook conference delivered mainly bearish news to investors, coming in with sizeable estimates for US sowings of major crops, signalling expectations of higher supplies in the offing, potentially worldwide.

As USDA chief economist Joseph Glauber said, "the high prices that we saw last year have prompted a global production response for most commodities".

Friday will bring more clarity on what exactly these higher sowings are likely to mean in terms of inventories, with the USDA to fill out balance sheets for major crops.

Inventory rebuilds?

On

corn

, USDA officials were on Thursday "already indicating that the ethanol grind is expected to decline further as we move in the new crop year while feed and export demand should increase", Jon Michalscheck at Benson Quinn Commodities said.

Indeed, talk in the market is of the USDA coming up with an estimate for corn stocks at the close of 2012-13 of 1.475bn bushels, a jump of more than 80% year on year, (if below an outline figure of 1.6m bushels pencilled in in initial estimates).

That said, it is on

wheat

that many investors are most nervous, after yesterday's data included a figure of 58.0m acres for US wheat sowings, up 3.6m acres year on year, and factoring in likely better spring sowing conditions.

"Assuming normal yields, US wheat output could rise to 2.2bn-2.3bn bushels this year, further boosting US wheat inventories," Luke Mathews at Commonwealth Bank of Australia said.

Last year's harvest was 2.0bn bushels.

Canada vs US

Minneapolis spring wheat, which bore the brunt of the sell-off on Thursday, maintained downward movement, falling 0.5% to $7.97 a bushel for March delivery as of 08:20 GMT – the lowest for a spot contract since early December 2010.

Adding to the contract's difficulties are expectations of bigger seedings in Canada, a big spring wheat producer, too.

Furthermore, while the US has regained competitiveness in lower quality wheat, winning its first orders from top importer Egypt since June, it may be losing the edge in high protein spring grain.

A purchase by Iraq of 400,000 tonnes of Canadian wheat played a bigger part in depressing sentiment on Minneapolis on Thursday "than the market is giving it credit for", Benson Quinn's Brian Henry said.

"The price range of $350-360 a tonne including freight seems to be more in line with US hard red winter wheat values, and is probably cheaper, than it is with US hard red spring values.

"The wheat Iraq bought wasn't cheap by any measure. But it does highlight the substantial premium US hard red spring wheat has been trading to the other two markets."

'Undervalued relative to China'

Still, this time Chicago, soft red winter, wheat for March fell in line, down 0.5% at $6.38 ½ a bushel, with the better-traded May lot shedding 0.4% to $6.38 ½ a bushel.

And this put some pressure on fellow grain corn too, as traders balanced off the competition in feed markets between the grain and wheat, against likely outcomes from today's USDA data, and the more bullish factor of Chinese demand.

The country was on Thursday revealed to have purchased 120,000 tonnes of US corn, with other orders to "unknown" destination also floating around this week, amid persistent speculation of considerable Chinese buying interest.

"Grains and oilseed markets look undervalued relative to Chinese domestic prices," Paul Deane at Australia & New Zealand Bank said.

"US corn on a [freight included] basis into China has traded at a $10-a-tonne discount to domestic prices for the last month - even after incorporating VAT."

If Thursday's order "is the start of a wave of additional US corn purchases by China, this could well be the catalyst for corn prices to rally 5% short term, pushing corn back to $6.70-a-bushel levels".

Corn vs soybeans

Corn for March actually fell 0.2% to $6.38 ¼ a bushel, with the better-traded May lot easing 0.3% to $6.40 ¾ a bushel.

New crop December corn fell too, by 0.3% to $5.57 a bushel.

It was

soybeans

which again did best, even if only by adding 0.25 cents to $12.77 a bushel for March delivery, and 0.2% for the new crop November lot, taking it to $12.69 ¾ a bushel.

Indeed, the USDA's upgrade on Thursday to its estimate for US soybean sowings is looking in line with the market vibe, with the new crop soybean: corn price ratio, seen as a key metric in influencing farmers' spring sowing decisions, hitting 2.28.

The ratio began the month at 2.11, more in corn's favour.

'Demand remains solid'

Soybeans are being helped by renewed concerns over weather in South America, where dryness has tested crops in many areas, and many investors are downgrading hopes for the revitalising effect of recent rains.

Indeed, Argentina's biggest grains exchange, the Rosario, cut its estimate for the domestic soybean crop by 5.0m tonnes[A1] to 44.5m tonnes, below the 48.0m tonnes that the USDA has forecast.

Many private analysts have been more generous in their downgrades than the USDA, but not many falling below 46m tonnes.

Besides, China has been coming up with orders of US crop too.

"Demand remains solid and the trade continues to watch South American crop development," Ker Chung Yang at Phillip Futures said.

Data later

Soybean firmness helped others in the oilseed complex too, with

palm oil

adding 0.2% to 3,278 ringgit a tonne in Kuala Lumpur.

That said Mr Ker noted that buying enthusiasm for the vegetable oil has been capped by "investor concern about slowing global growth that could curb commodity demand".

As for whether Chicago crops can hold on to gains, that may depend on, besides USDA pronouncements, the outcome of weekly US export sales data.

The market is expecting a jump in soybean sales to 3.5m-3.9m tonnes, from 615,000 tonnes last time, boosted by Chinese purchases.

Wheat sales are expected to rise to 500,000-900,000 tonnes, from 428,000 tonnes, and corn to 800,000-1.2m tonnes, from 1.1m tonnes last time.

By Agrimoney.com

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