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Cash markets boost grain futures

08/15/2012 @ 3:30pm

U.S. soybean futures jumped Wednesday, as stronger cash markets raised expectations for more export demand and traders remained concerned about a tight supply outlook.

Chicago Board of Trade September soybeans settled up 36 1/4 cents, or 2.2%, at $16.59 3/4 a bushel. Most-active November soybeans rose 36 1/2 cents, or 2.3%, at $16.34 1/2 a bushel.

Cash basis for soybeans, or the difference between cash-market prices and futures, has seen substantial improvements in the past week, rising 40 cents a bushel at export terminals in the Louisiana Gulf.

Some traders are speculating that China will buy more U.S. soybeans soon. Under its daily reporting system, the USDA last week announced four export sales of soybeans, including three to China and one to unknown buyers. That followed weeks of relatively few announcements under the daily system and highlighted that demand remains strong despite elevated prices.

Meanwhile, domestic consumers of soybeans from processors to livestock feeders have raised their bids for supplies as well.

"The strengthening in basis is an indication of how tight old-crop soybean supplies are," said Dave Marshall, an independent grain marketing adviser in Nashville, Ill.

Traders also remain concerned about the worst U.S. drought in decades reducing the country's soybean output this year, extending a period of tight supplies. The USDA in a closely watched report on Friday cut its U.S. soybean production forecast by more than expected, to 2.69 billion bushels from 3.05 billion bushels.

Soybeans also rose Wednesday as weather forecasts diverged on how much rain is likely next week, weakening analysts' expectations for rainfall to benefit the soy crop.

"Earlier this week it looked assured that next week's maps were turning wetter," said Tregg Cronin, a market analyst at brokerage Country Hedging. "August is still running below normal on precipitation."

Corn futures also ended higher, lifted by soybean prices and continued concerns about tight corn supplies. Drought has drastically reduced the amount of corn expected to be harvested in the U.S. this year.

Some market participants bought corn Wednesday to take advantage of price declines since Friday, expecting prices to recover due to tight supplies, traders said. The USDA on Friday cut its domestic corn-production forecast more than expected but projected inventories in line with analysts' expectations, disappointing some market participants who had hoped for even lower forecasts.

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