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Fund buying credited for jump in crop prices

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Crops, for once, saw off the influence of mixed external markets to post substantial gains in late trade on Monday – puzzling many traders.

By rights crop prices should have been, at best, mixed after the dollar began to recover ground and equities fell – a sign of waning appetite among investors for risk.

A weaker dollar also makes US exports, such as farm commodities, less competitive.

Oil, too, turned lower (just) as of 19:00 GMT, worsening prospects for crops such as corn and sugar used for making biofuels.

'All pointed lower'

Furthermore, weather looked fine in the US Midwest, presenting good prospects for the delayed corn and soybean harvests playing catch up.

As Allendale put it, ahead of Chicago markets opening: "There are some that do not believe the funds had anything to do with the run higher in grains. They felt that it had everything to do with the delayed planting.

"Today gave us a day where if you believe the funds more than the market, or weather, or both it didn't matter because they all pointed lower."

'Impressive display'

But that wasn't how they finished. While so much was stacked against crops, grains ended the session on a flyer, leaving many marketwatchers scratching their heads.

It looks like fund buying was the critical factor, perhaps fostered by a beginning-of-the-month shopping spree.

"Funds were big, aggressive late buyers in most pits late in the session," Vic Lespinasse, at GrainAnalyst.com, said.

"This was an impressive display of the funds influence on the market."

Quality factor

However, some other factors may have played some part.

For soybeans, at least, upbeat weekly US export data did their bit, coming in at 63.7m bushels, well ahead of market forecasts.

And another broker, Iowa-based US Commodities, cited the potential for a poor quality corn crop, even if yields came in high, which could have a selective impact on prices.

"Quality appears to be the issue," the broker said. It was "now a concern" how many bushels of third grade corn, fit for animal rather than human consumption, would hit the market.

"Test weights and moisture are a concern for corn. This will mark the 2009 corn harvest."

Corn for December ended 4.5% higher at $3.82 ¼ a bushel, with wheat for the same month soaring 4.6% to $5.16 ¾ a bushel.

Soybeans, which have been less volatile than the grains in recent weeks, added 2.0% to $9.97 ½ a bushel for November.

'Buyers slowly return'

The gains, coupled with weaker European currencies, and while stacked towards the end of the day, started in time to help London and Paris wheat make headway too.

Paris wheat for November added E0.75 to E127.50 a tonne, with London wheat for the same month settling up £2.00 at £104.00 a tonne.

"Today on the back of a falling dollar markets have risen slightly as buyers slowly return," Hugh Schryver, at grain giant Glencore, said.

Nonetheless, London volumes remained tiny, with 16 November lots traded, albeit an improvement on Friday's zero, and November 2010 proving the best traded contract, with a volume of 90 lots.

Coffee perks up

Softs were also stronger, even as the dollar revived with, strangely enough, fund buying credited for the rises.

Raw sugar for March added 2.4% to 23.35 cents a pound in New York, with London refined sugar adding 1.8% to $590.70 a tonne.

Coffee did even better, soaring 5.1% to 141.95 cents a pound for New York arabica beans, December delivery.

Robusta beans ended 3% higher at $1,431 in London, amid reports of strong winds and heavy rains disrupting the early harvest in Vietnam.

By Agrimoney.com

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