21/06/2012 (AgriMoney.com) - A touch of vertigo set in to agricultural commodity markets on Wednesday, as investors pondered whether crops had not been inflated with enough weather premium for now. This was not just the case for grains.

New York raw sugar, for instance, lost some of its 3% gains of the last session, when it ended at its highest for nearly two months propelled in part by the outlook for more harvest-delaying rains in top producer Brazil.

"Another week of rainy weather is expected to wreck Brazil's main cane belt, further delaying and interrupting sugar production," Lynette Tan at Phillip Futures said.

Still, with investors more in profit-taking than short-covering mode, the July contract dropped 0.6% to 21.44 cents a pound as of 09:00 UK time (04:00 New York time,. 03:00 Chicago time).

Cotton rally stretched
And New York cotton found headway more difficult too, finding little echo in China, the top producer, consumer and importer of the fibre, besides the physical market, for huge gains on the back of the prospect of a huge US sales cargo needing to be filled in short order.

On China's Zhenghou exchange, the benchmark January contract added all of 0.2% overnight to stand at 19,450 yuan a tonne.

Will the US order, said to be priced at a premium to futures, be filled at any price? The rally in New York's July contract of 30% in two weeks slowed, taking it to 88.84 cents a pound, up 1.0%.

And the December lot, which has largely been pulled along for the rise, although winning support from lower expectations for US sowings too, fell 1.5% to 73.31 cents a pound, looking potentially at its first negative close in seven sessions.

'All weather and forecasts'
As for Chicago grains, they had, largely, recovered ground lost in an early selling wave. But making further headway was tricky.

After all, some prices are already historically elevated, even if dry weather in the US offers some reason for them so being.

November soybeans, after all, stand within an ace of their contract high, reached in September last year, of $14.00 a bushel.

That point could open the way to levels of $14.50-15.00 a bushel if beaten, Mike Mawdsley at Market 1 said.

But getting through it may mean bulls getting the right result on daily weather forecasts which have something of the air of a lottery about them at the moment.

"It's all weather and forecasts from here," Mr Mawdsley said, adding that "at this time of year big rallies in the morning can be met with big sell offs in the afternoon".

Weather outlook
In fact, the latest outlooks are steady for the US, with the European model holding its course, according to WxRisk.com.

"It does not show any changes in the one-to-three day outlook. The heat is coming until June 21-22," before a cold front front dislodges the heat over the eastern Corn Belt.

"The western Corn Belt, the Deep South and the Plains stays hot until June 24-25."

New crop November soybeans, which are gaining an extra kicker from ideas that dryness will deter winter wheat growers from planting follow-on crops of the oilseed, added 0.3% to $13.88 ¾ a bushel.

New crop December corn recovered half its early losses to stand 0.4% lower at $5.61 ½ a bushel, under pressure from profit-taking on gains of more than 10% in the past two sessions, helped by funds which, until recently, had been paring back long exposure to the grain, on expectations of a huge harvest.

'Wake-up call'
Indeed, the weather scares appear to have been a "wake-up call" to investors who were "net short to nominally long in a market who supply fundamentals appear to be radically and rapidly changing", Kim Rugel at Benson Quinn Commodities said.

However, not enough of an alarm call yet to drive the December lot through its 200-day moving average, at a little over $5.64 a bushel, which it shied away from in the last session too, having returned over 50-day, 100-day, 20-day etc lines.

The July contract actually fared better on Wednesday, adding 0.25 cents higher to $6.12 ¾ a bushel, making up from some underperformance in the last session after some ethanol plants shut up shop.

"The high corn prices, together with lower oil prices, result in organised temporary shutdown of ethanol production capacity by Valero Energy and Nedak Ethanol, removing 154m gallons per year from the market," Phillip Futures' Lynette Tan said.

Old crop soybeans, still buoyed by a US export order on Tuesday, did better, adding 0.6% to $14.41 ¾ a bushel.

'Shorts throwing in the towel'
For wheat watchers, one of the big questions is whether its recovery has been down merely to support from corn and soybeans, or from its own credentials.

A 0.2% rise to $6.51 ¼ a bushel in Chicago for July delivery was hardly conclusive but, in the face of pressure from the US harvest, suggested it may have something of its own mojo.

"Shorts are throwing in the towel," Mr Mawdsley said.

In fact, weather forecasts for the former Soviet Union, seat of fears for wheat crops, are only marginally promising for farmers, with rains forecast for Kazakhstan and Ukraine.

In Russia, "over the next seven days rainfall be only 25% of normal over the southern district and most of the Volga District", WxRisk.com said.

Palm revival
Palm oil was actually one of the better performers, adding 2.1% to 3,011 ringgit a tonne for September in Kuala Lumpur, looking for its first close above 3,000 ringgit a tonne in two weeks.

Besides reduced concerns for the eurozone, a major importer of the vegetable oil, both Societe Generale de Surveillance and Intertek Testing Services, the cargo surveyors, estimated Malaysian exports up by 15% so far this month.

At FCStone Rory Deverell said: "Crude palm oil trading back of 3,000 ringgit a tonne looks like a bullish turnaround for that vegoil with soyoil supply threat an underlying fundamental driver.

"With Ramadan coming up to too the demand side may also be supportive."