Early Morning Feel

08/12/10 -- The overnight grains are sharply lower across the board, with benchmark March wheat down 17c, beans down a similar amount and corn down 6-8c. Crude oil is also sharply lower at USD88.18/barrel, having hit a 26 month high of USD90.76/barrel yesterday.

There doesn't seem to be any particular BIG news to have changed trader sentiment, so maybe this is the start of the much talked about year-end profit-taking? More than one report I have read recently mooted that a sharp sell-off could be on the cards as we approach the end of 2010, and those lovable scamps the fund managers look to get another year of hefty bonuses guaranteed and tucked away.

There seems to be a chance of rain for dry eastern Argentina as we approach the weekend, but it hardly seems like a drought-buster.

"E Argentina will see some very important rains during a 24-36 hour period starting late Thursday and lasting through Friday. Conditions will then dry again for the following 8-11 days," say QT Weather.

"Overall, the (next) two week period will see net drying but key rains are in today’s forecast for the driest and most stressed areas of central and northeast Argentina into southern Rio Grande do Sul of Brazil this Friday and Saturday," they summarise.

Australia's problems haven't gone away, indeed with a crushing defeat in the cricket in Adelaide, they've been added too :-)

Furthermore there are reports now of dryness problems now for wheat in North Africa and the Middle East, according to our chums at Agrimoney. Whilst US, Chinese and Russian winter wheat also have issues.

For me, wheat remains the strongest leg of the complex, with beans second and corn bringing up the rear.

Beans score on continued Chinese demand, potential problems in Brazil (production forecasts now starting to be downgraded) and even more so in Argentina and tightening US stocks.

Corn is worried about increasing volumes of Australian feed wheat coming onto the market and the unresolved issue of the soon to expire blenders credit. There has so far been little evidence to back up the theory that China will be a large scale importer of corn in 2011. Meanwhile the government there only sold 10% of the 1.8 MMT on offer at public auction this week.

If we are about to see a pre-Christmas sell-off then it could present a decent buying opportunity, as fund money will quite likely be looking for somewhere to hang it's hat early in the New Year. Agri commodities probably will fit the bill quite nicely.