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Evening markets: cold snap fuels crop price rally

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Wheat jumped 3%, and corn closed at its highest for six months, as crops joined a broader commodities rally spurred by a weaker dollar and expectations of fund buying.

The first trading day of the decade provide to be a good one for many markets, with news that Swiss pharmaceuticals giant Novartis was buying control of America's Alcon helping equity markets post gains of more than 1% on both sides of the Atlantic.

But commodities were placed particularly in focus by the weaker dollar - which made most of them, being denominated in the greenback, more competitive as exports – and cold weather in both North America, Asia and Europe.

That helped oil gain more than 2%, to hit $81.68 a barrel for benchmark New York crude at one stage, and crops with a biofuel angle gain too.

Biofuels boost

Corn, America's favourite bioethanol crop, closed up 1.0% at $3.18 ½ a bushel in Chicago for March delivery, the highest close for a spot contract since June.

Wheat, which Europe is championing as a bioethanol source, jumped 3.0% to $5.57 ½ a bushel for March delivery. Cold weather is also a risk for winter-sown crops, especially if they are not protected from deep chill by a snow blanket.

Soybeans, a biodiesel source, closed up 9.75 cents at $10.49 ½ a bushel for January and 9.5 cents at $10.58 a bushel for the better-traded March contract.

Sugar, a major source of ethanol, ended higher too, up 2.5% at 27.62 cents a pound in New York for March delivery, the strongest close for a near-term lot since February 1981.

In London, white sugar for March finished up 1.6% at $721.70 a tonne, after earlier touching $726.30 a tonne, an all-time high for a spot contract.

Jumping juice

Not that energy stocks were the only crops to benefit from the cold weather, which saw two of three runways at Beijing airport closed because of snow, and temperatures forecast to drop to -20 degrees Celsius.

Orange juice for March closed up 3.5% at 133.55 cents a pound, on fears of a frost to damage groves in Florida, America's biggest citrus state. The contract hit $1.3905 at one stage, up 7.7% on the day.

Nor were cold weather and dollar the only bull points in town.

The prospect of purchases by funds, pumped up by fresh money and with a rebalancing act in the pipeline too, continued to prove a major distraction.

Dow Jones-UBS Commodity Index, which has an estimated $43bn invested through it, will reportedly rebalance on January 7 in a five-day process, which adjusts positions back to base weights – so favouring poor 2009 performers over good ones.

'Reversal lower'

In terms of what this means in the markets, some traders have talked of 60,000 contracts bought throughout the farm commodities complex. (This may include some sales of sugar, of course, which was one of the best performing of all commodities last year.)

Broker US Commodities said: "The rebalancing is expected to produce 55-60,000 [contracts of] new corn buying and 15-20,000 [contracts of] new buying in wheat and soybeans."

If the funds arrive at all, of course, of which some investors are sceptical.

"If the funds do not buy late [on Monday], then the market could suffer a reversal lower," Darrell Holaday at Country Futures said half way through Chicago's trading day.

Given that crops closed below day highs, that bodes ill for Tuesday's trading.

By Agrimoney.com

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