Soybeans advanced in Chicago on speculation yesterday's decline will lure importers and investors amid concerns supply will tighten as dry weather hurt crops in Brazil and Argentina.

March delivery soybeans gained 0.4 percent to $13.85 a bushel on the Chicago Board of Trade at 2:29 p.m. Singapore time, after losing 1.7 percent yesterday.

Dry weather in the southern Brazilian states of Rio Grande do Sul and Mato Grasso do Sul may pare output, Marco Antonio dos Santos, a meteorologist at Sao Paulo-based Somar Meteorologia, said yesterday.

"We're seeing bargain-hunting," Ker Chung Yang, an analyst at Phillip Futures Pte., said by phone from Singapore today. "Weather forecasting in South America affects the market because we're now over the U.S. harvesting period and there's concern demand will outpace supply."

Farmers in Brazil have sold 37 percent of the crop they'll start harvesting this month, more than the 23 percent sold a year earlier, after prices rose and demand increased, crop forecaster Celeres said yesterday.

That compares with 30 percent of the crop sold on average for the same period in the past years five years, Celeres said in a statement.

Brazil, the world's second-largest soybean grower and exporter, was forecast to produce 67.5 million metric tons of the oilseed this season, down from 69 million tons a year earlier, according to the U.S. Department of Agriculture.

Eoin Treacy's view Soybean prices found support in the region of 800¢ from late 2008 and formed a base mostly below 1100¢ until October. With soybeans breaking above 1200¢ and subsequently finding support in the region of that level, the sustainability of the medium-term uptrend has been lent additional credence. Prices have paused over the last week near 1400¢ and a sustained move below 1275¢ would be required to question medium-term potential for further upside.

Commonality across the agriculture sector remains supportive of the view that inflationary pressures are mounting. Most food commodities are in medium-term uptrends and some such as sugar and cotton have hit new multi decade highs in nominal terms. Feeder cattle has broken out of a near decade long range. In such circumstances farmers can be relied on to attempt to increase next year's harvest. As credit conditions improve access to the capital required to purchase machinery, seeds and fertilizer is easier and the shares of such companies are beginning to reflect increased investor interest.

Despite BHP Billiton's failed bid for Potash Corp of Saskatchewan, the share has held the majority of its advance and has formed a first step above the 18-month base. It is now rallying towards the August peak near C$160 and a sustained move below C$140 would be required to question potential for a successful upward break.

Agrium consolidated above its March 2010 highs from October but hit a new recovery high last week and a sustained move below C$80 would be required to question medium-term upside potential.

Yara International consolidated briefly in the region of NOK300 and hit a new recovery high in early December. A sustained move below NOK300 would now be required to question medium-term upside potential.

Mosaic and Western Potash found support in the region of the upper sides of their bases and would need to take out their December lows, on a sustained basis, to question medium-term upside potential.

K+S consolidated in the region of €50 for a month and hit a new recovery high in early December. A sustained move below €50 would now be required to question medium-term upside potential.

Incitec Pivot ranged below A$4 from October and broke upwards today. A sustained move below the 200-day MA currently in the region of A$3.55 would be required to question medium-term upside potential. Intrepid Potash completed its base last week and a downward dynamic would be required to check medium-term upside potential.

Titan International, which manufactures tyres for mining, industrial and agriculture machinery completed a first step above its base in October and continues to extend its medium-term uptrend. While currently overextended relative to the 200-day MA, a break of the progression of rising reaction lows, currently near $16 would be required to question medium-term upside potential. (Also see Comment of the Day on November 10th)

DuPont de Nemours has rallied impressively over the last two years and is now testing the pre-crisis high near $50. While somewhat overextended relative to the 200-day MA, a sustained move below $45 would be required to begin to question medium-term upside potential.

KWS Saat completed a 17-month range in November and continues to extend the medium-term uptrend. It is currently consolidating in the region of €150 and a sustained move below €140 would be required to question medium-term upside potential.

Monsanto found support near $45 in July and broke above $60 in November before consolidating for a month. It has since pulled away from that area and would need to sustain a move below the 200-day MA, currently in the region of $60 to question potential for continued medium-term upside. .

Higher food prices spur investment demand in companies that facilitate efforts to increase the supply of agriculture products. This type of environment puts less pressure on fertiliser, seed and farm machinery businesses to cut their margins and some have the potential to increase them. However the contrary is true of companies that benefitted most from comparatively low food prices.

Food processers continue to benefit from increased demand for their goods, particularly in Asia and Latin America, but now face the challenge of attempting to pass on higher input prices. A number of companies such as Associated British Foods and Sara Lee have been impressive performers but are currently overextended relative to their 200-day MAs and look susceptible to at least a consolidation of recent gains. Conagra, Kellogg and General Mills all need to hold above their November lows if their medium-term uptrends are to remain intact.