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Grains end year mixed, lagging softs and metals

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Crops put on a mixed showing at the end of a mixed year, which is being billed as the best year for commodities since 1973, despite a mixed performance by food commodities.

March wheat closed down 3.25 cents at $5.41 ½ a bushel, with March corn scraping to a 0.75 cent rise at $4.14 a bushel, and January soybeans adding 3.5 cents to $10.40 a bushel.

The followed a similarly unconvincing performance in Europe, where Paris wheat closed down E0.50 at E131.25 a tonne for January delivery, while London wheat edged up £0.45 at £106.50 a tonne.

Selling pressure

Indeed, it has not been a banner year for grains on either side of the Atlantic, but in particular Chicago, where wheat lost 11% overall, against a near-5% slide in Paris and flat performance in London.

Chicago corn ended 1.8% higher, with soybeans doing better with a 7% gain. Nonetheless, Paris's vegetable oil crop, rapeseed, did better, ending up 9.0% for the year at E287.50 a tonne.

The performance relatives appear surprising given the weakening of the dollar, which should have boosted the performance of commodities denominated in the currency.

But wheat in Chicago – the home of crop speculators - has suffered in particular from selling pressure for much of the year from investors concerned about the huge size of global inventories.

Bumper year

The poor performance of these crops contrasts with that of other commodities such as copper, which has jumped by 140%, or crude oil, which has had its best year in a decade.

The Reuters/Jefferies CRB index has risen about 24% this year.

Still, grains' poor performance may serve them well over the next couple of weeks, as commodity funds undertake their annual rebalancing back to fundamental weights.

This, in essence, means the best performers being sold, to cut their weight in a fund, with worse performers being bought.

"Index fund rebalancing is set to take place after the beginning of the year with funds reducing the weight of energies, metals, and softs and increasing weights in grains, soybeans, and livestock," US broker Benson Quinn Commodities said.

'Deeper correction'

As long, that is, as the reweighting occurs to schedule at the start of 2010.

"If the funds do not show up with large purchases on Monday, then a deeper correction can unfold with soybean futures leading the downward charge," rival broker US Commodities said.

Beside the prospect of the South American harvest, many analysts are predicting the US Department of Agriculture to increase its American soybean production forecast for 2009 in a report due in two weeks.

Corn, at least, has the prospect of rising use for making bioethanol.

Official data showing the US produced 964.1m gallons of ethanol in October, up 50.6m gallons from September and consuming an estimated 359.7m bushels of corn – a monthly record.

Hot cocoa

Investors in soft commodities have had better luck, with New York cocoa for March ending up $42 on the day at $3,289 – up 23% in 2009 to its highest year-end level since 1978 for a spot contract.

London cocoa ended at £2,271 a tonne, up 29% for the year.

The commodity's price has been helped by expectations of a fourth successive year in 2009-10 of production falling short of demand.

Sugar sweet

Sugar has done even better. New York's March raw sugar contract at 26.95 cents a pound, taking the 2009 gain for the spot contract to 128%, and a 28-year high.

London white sugar for March ended at $710.20 a tonne, up 123% during the year.

The rally has been triggered by weaker-than-expected harvests in Brazil and India, the world's top two sugar producers.

Arabica coffee beans have also proved a winning call for bulls, adding 21% to $1.3595 a pound for New York's near-term contract.

Heavy rains have damaged crops in Brazil and Colombia, where output has also been hurt by a replanting programme.


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