U.S. grain and soybean futures lost ground on Thursday as worries about the "fiscal cliff" weighed on commodities despite signs of bullish supply and demand fundamentals for some crops.
The nearby March wheat contract on the Chicago Board of Trade (CBOT) slid to a near six-month low, before recovering in part and finishing with modest losses shared by soybeans and corn.
In the wake of President Barack Obama's return to Washington to restart negotiations over the federal budget, U.S. equities also traded lower.
"The whole commodity world feels this fiscal cliff is going to be deflationary," said Chris Manns, president of Traders Group Inc. in Chicago. "It's going to be fewer dollars chasing fewer goods and services if we fall off the fiscal cliff."
Late in the grain-trading session, however, news broke that the U.S. House of Representatives will hold a work session on Sunday, one day before the Dec. 31 deadline for reaching a deal to avert the so-called fiscal cliff. Without a deal, the deadline would trigger spending cuts and tax increases.
Wheat, corn and soybeans all pared their losses in the final minutes of trading.
Chicago soybeans and wheat are, despite big losses this quarter, heading for the largest yearly gains of the 19 components of the commodities benchmark Reuters Jefferies CRB Index. Both are up about 18 per cent on the year, boosted by drought-related production declines in key growing regions.
But concerns about the struggling U.S. winter wheat crop and growing-season weather for South American corn and soybean crops are secondary to fears about the fiscal crisis, Manns said, with thin holiday-season trading volumes leaving grain markets vulnerable to quick turns.
With the U.S. "fiscal cliff" in mind, large speculators have slashed their bullish bets on corn to the smallest level since June and boosted their net short position in Chicago wheat to the highest since May, data from the U.S. Commodity Futures Trading Commission showed last week.
Chicago March wheat fell 2-1/4 cents, or 0.3 per cent, to $7.72-1/4 a bushel, after dropping to $7.64-1/2 earlier, the lowest price since early July (all figures US$).
"Now you're looking to see if you can get to some (low prices) where U.S. wheat will look more enticing," said Dax Wedemeyer, a broker and analyst at Iowa-based U.S. Commodities.
U.S. soft red winter wheat, the type traded at the CBOT, has become the cheapest milling wheat in the world. An absence of fresh export sales, however, has kept a lid on futures prices.
Traders were monitoring crop weather in the southern U.S. Plains hard red winter wheat region, where cold temperatures this week raised the threat of crop damage from winterkill.
CBOT January soybeans dipped 5-3/4 cents, or 0.4 per cent, to $14.18-3/4 a bushel, while March corn shed 1-3/4 cent, or 0.3 per cent, to $6.91-1/2 a bushel, pressured by long liquidation.
Soybeans were underpinned by the U.S. Department of Agriculture's report on Wednesday of sales of 115,000 tonnes of U.S. soybeans to China and 108,000 tonnes to unknown destinations, both for delivery in 2012-13.
USDA is to release its weekly report of grain and soy export sales on Friday morning.
The soybean market has been weighed down in recent weeks by forecasts for record production in South America, where crops are experiencing largely favourable weather.
The wet areas of Argentina were expected to turn drier in the next two weeks, easing concerns about excess moisture, while welcome rains were forecast later this week and next week for parts of central Brazil.
Overall, fundamental conditions of supply and demand are becoming more bullish amid unfavourable dry weather for winter wheat in the southern U.S. Plains and recent soybean purchases by China, Mike Zuzolo, president of Global Commodity Analytics, said in a note to clients.
"I think most people are looking for late January to start revving up (prices) again," Manns said. They're "waiting for the hit, the selloff, and then look for cheap grains, or cheap gold, or cheap anything, to get back into the market again."
-- Rod Nickel
writes for Reuters from Winnipeg. Additional reporting for Reuters by Sybille de La Hamaide and Valerie Parent in Paris and Naveen Thukral in Singapore.