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PM markets: wheat futures extend gains ahead of fund rejig

Wheat futures extended the previous session's gains, ahead of index fund rebalancing, as speculators get in ahead of the reweighting.

"Wheat, like the corn market, is trading at highest levels since mid-December as funds cover shorts and some pre-trade the mid-January index fund rebalance," said Kim Rugel,at Benson Quinn Commodities.

"Talk of inflation hedge has also attracted new buying to wheat which was one of the poorest performing commodities last year," Ms Rugel said.

"Shorts in the market bought positions back today as funds underwent annual position adjustment and prepared for next week's USDA report," said CRM AgriCommodities.

In its final update ahead of the reweighting, Societe Generale saw the potential impact on volumes for Kansas wheat at 14.4% per day during the period, while for Chicago wheat it was 10.1%.

These percentages are significant and will likely have a material impact on prices, curve structure and sentiment ahead of, and also during the rebalancing period," Societe Generale said.

Winterkill fears

And wheat is still gaining from fears over the US crop, after the latest crop reports from the US Plains showed large declines in condition over the last month.  

"All of the reports cited dryness as reasons for the decline, which is important as the winterkilling cold temperatures weren't really addressed and could make an impact with the end of January conditions," noted Tregg Cronin, at Halo Commodities.

Mr Cronin noted tha larges ares Kansas, Oklahoma, Texas and Colorado "have little to no snow cover as protection against this week's cold". 

Mr Cronin said it was "still incredibly difficult to assess damage, but the sharp contrast to last year's conditions provides somewhat of an indicator".  

March Chicago wheat futures settled up 1.6%, at $4.25 a bushel.

In Kansas, hard red winter wheat futures finished up 1.8%, at $4.34 a bushel.

Chance for flooded acres in Argentina to dry out

The soybean market lost momentum, as markets chewed over just how much area in Argentina will be lost due to the recent flooding.

Some had estimated that as much as 1.0m hectare of soybeans could be lost, but the Rosario exchange suggested a much more modest impact of 100,000 hectares.  

The Buenos Aires exchange sees 85% of beans already.

"This is about 10% behind normal pace but this is more due to dry start to planting season rather than recent excessive rains," said Kim Rugel, at Benson Quinn Commodities. "These wet areas have had a chance to dry this week."

"Soaking rains are forecast for the weekend but will be followed by drier weather in second half of next week," Ms Rugel said.

"In other words, there is still time to finish planting of Argentine crops."

A lot of farmland to watch

"The headline driven trade from South American weather will keep volatility high, but producers must remember the sheer land mass we are dealing with in Argentina and Brazil," said Tregg Cronin, at Halo Commodities.

"Issues always arise in South America, but nothing on the table today should trim expected soybean production much at all."

March soybean futures settled up 0.3%, at $10.02 a bushel.

Ethanol surges

Ethanol futures rose, as the US Energy Information Administration announced falling stocks, despite rising production.

Stocks of the corn based biofuel were seen down 5,000 barrels to 18.68m barrels, as production rose by 15,000 barrels per day to 18.68m barrels.

February ethanol futures were up 3.1%, at $1.55 a gallon.

March corn futures settled up 0.4%, at $3.61 a bushel.

Sugar breaks rally

Raw sugar figures broke a six-day rally late in the session, falling back from a seven-week high.

"The rally has been based on a return of concerns about the deficit we face in the first half of 2017 with India's production numbers being questioned once more," said Nick Penney, at Sucden Financial.

"Whilst India seems to be the main story as regards fundamentals, the recent technical turnaround from 18 cents has largely been effected in the absence of producer selling, either due to the holiday period, or because hedging programmes for the coming season are already well advanced for both Brazil and Thai producers," Mr Penney said.

"This has meant that technical Funds and large speculators have had to either buy or stop themselves out of shorts in a relative vacuum."

March raw sugar futures settled down 0.5%, at 20.78 cents a pound.

Cotton reversal

Cotton futures also suffered a reversal, after hitting an early five-month high.

Prices initially extended the previous session's sharp rally.

"Buying interest could increase as India remains out of the market due to the economic changes there and as China could buy more due to untimely rains at harvest time that might have hurt fibre," noted Jack Scoville, at Price Futures Group.

But the rally could not be sustained, and March futures in New York settled down 0.4%, at 73.78 cents a pound, after reaching as high as 75.37 cents a pound.

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