CHICAGO U.S. crop supply-demand data and solid rains forecast for the parched southern Plains breadbasket will compete in agricultural futures markets with the European debt crisis to see if fundamentals or risk-off sentiment will prevail this week.
Lower on the radar will be a Senate vote on a bill aimed at pressing China into raising the value of its currency, which some grains analysts fear could draw fire from the top buyer of U.S. soybeans and importer of U.S. corn.
Traders will also watch the corn and soybean harvest, with clear skies paving the way for the best week so far in the Midwest grain belt.
Chicago Board of Trade grain futures have been taking price direction the last few weeks largely from macroeconomic factors centered on Europe's debt crisis and the gyrating dollar, even as the world's biggest corn and soy harvest progressed, with prices dropping to multi-month lows.
CBOT wheat futures and soybean futures fell for the fifth straight week last week, while corn was able to snap a five-week losing streak, but just barely.
Despite the big slump in prices -- corn is down 25 percent from its all-time high near $8 per bushels set in June and wheat on the cusp of slipping below $6 per bushel -- analysts are not convinced the market is near a bottom.
"I'm not banking on a rebound," said grains analyst Karl Setzer of MaxYield Cooperative in West Bend, Iowa.
"It's a hard time for commodities to rally. The underlying mind-set of the market is for speculators to not buy the breaks and sell during rallies," he added.
EUROPE DEBT CRISIS CASTS LONG SHADOW
Germany and France, the top two economies in Europe, were split ahead of a summit on Sunday over how to recapitalize shaky European banks and counter a sovereign debt crisis that threatens to stall the global economic recovery.
Rating agency Fitch cut Italy's sovereign debt rating by one notch and Spain's by two, citing a worsening of the euro zone debt crisis and a risk of fiscal slippage.
Fears that Greece could default on its debt escalated, chilling investments in risky assets such as commodities.
"The EU has put on another Band-Aid. Band-Aids can slow the bleeding but not stop it," Setzer said.
Fears of a Greek default triggering a contagion across Europe and slowing global growth has led money managers to cut bullish bets in corn and soy for a fifth straight week.
But they still hold a sizable net long position in CBOT corn of 115,255 contracts, and 27,448 contracts in soybeans, and analysts fear further liquidation.
ANOTHER USDA SURPRISE?
The U.S. Department of Agriculture's supply-demand report on Wednesday could offer price direction as it updates U.S. corn and soybeans production and ending stocks data.
The report follows one on quarterly grain stocks last week that took traders by surprise as corn stocks came in 17 percent above an average trade estimate.
"Traders were shell-shocked by the quarterly stocks numbers," said grains analyst Mike Zuzolo of Global Commodity Analytics in Lafayette, Indiana.
Zuzolo said he was expecting the USDA to slightly increase its estimate of U.S. corn yield, adding that a recent drop in prices have helped to lift export demand for soybeans.
A Reuters Poll showed analysts on average expected the USDA to marginally raise corn yield to 148.8 bushels per acre from 148.1 bushels in September. They were expecting the soy yield to be unchanged at 41.8 bushels per acre.
Zuzolo also said there was some concern over the Senate's bill on the Chinese currency. "China is buying a lot more corn and pork and they are the No 1 buyer of soybeans," he said.
(Reporting by K.T. Arasu; Editing by David Gregorio and Maureen Bavdek)