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Morning markets: China continues to weigh on crops

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Crops lost further ground on Friday as China's move to mop up liquidity continued to concern investors, despite the prospect of fund rebalancing starting in earnest.

The dollar continued to strengthen too. Some traders claimed this was down to hopes for better US jobless data, ie improving hopes for the global economy, rather than a flight to quality amid concerns for a Chinese slowdown, ie deteriorating hopes.

Whatever, it rose to a four-month high against the yen, and hit $1.4288 against the euro at one point, making dollar-denominated assets such as crops less competitive.

Vegetable oils slip

China's signal of tighter monetary policy, by raising interest rates on its three-month bills, and potentially of some economic slowdown was viewed as a particular threat to soybeans, given the country's status as the world's biggest importer of the crop.

March soybeans eased a further 4.75 cents to $10.21 ¼ a bushel in Chicago, as of 08:00 GMT, with the soon-to-expire January lot down 6.25 cents at $10.11 ¼ a bushel.

They lost further ground on China's Dalian exchange too, adding a 1.1% loss to the 2%+ shed on Thursday.

And in Kuala Lumpur, palm oil shed 1.5% too at one point before the prospect of key monthly data on Monday from the Malaysian Palm Oil Board encouraged positing covering, helping the benchmark March contract to recover back to 2,630 ringgit a tonne, unchanged on the day.

Fund buying

The grains managed a somewhat better performance, with March corn also unchanged in Chicago, at $4.17 ½ a bushel, while wheat eased 2.25 cents to $5.55 ½ a bushel.

Still, this was not the performance that many traders had expected at a time when funds are due to start in earnest their rebalancing process, which takes weightings back to base levels – meaning 2009's laggards, such as grains, are bought and its stars, such as copper, sold.

The S&P Goldman Sachs Commodity Index rebalancing is due to start on Friday, with the DJ/UBS Index reweighting due for next week.

"Total buying in soybeans by the various index funds is estimated at 20,000 contracts over the next five to six trading sessions," US broker Benson Quinn Commodities said.

On Thursday, funds were viewed as sellers, at least in corn, of which they sold an estimated 5,000 contracts.


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