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Morning markets: corn remains in the doghouse

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Corn's close in Chicago as far down as it exchange rules allowed in the last session, and indications from synthetic trades of further selling pressure, indicated a weak start to Wednesday trading.

So it occurred, with the March contract shedding a further 13.5 cents, or 3.4%, to $3.79 a bushel, by 07:40 GMT, its lowest for a month.

From Monday's high, the contract has now fallen 11% - something of bulls' nightmare.

And that's before taking into the fact the gearing effect from many have bought largely on borrowed money. And that sell stops put on to get them out of loss-making positions may have been ineffective in such a buyer-bereft market.

"Funds were estimated to have sold well in excess of 10,000 contracts on the day with those needing coverage [of short positions] being more than willing to let the market come to them," Jon Michalscheck at Benson Quinn Commodities said.

Negative forces

The trigger for all this selling was, of course, in the main Tuesday's US Department of Agriculture report raising its estimate of America's corn production in 2009-10, rather than lowering it by 100m bushels as analysts had expected.

The rain-delayed harvest, which has left big chunks of the crop still in the field, had been expected to have lost some yield.

However, it was not the only negative influence, with China's decision to raise the amount of money banks have to set aside in reserves denting markets on a broad basis.

The anti-inflationary move may, by putting the brakes on China's credit boom, quell not just growth - Shanghai shares were down 3.1% - but curb the country's huge appetite for commodities.

China factor

Sure, China is not (yet) a corn importer. But it is a big importer of oil, which fell a further 1.3% back below $80 a barrel. And corn is a major feedstock for alternative energy source bioethanol.

China is a large buyer of foreign soybeans, and may actually continue to be for a while, to judge by a USDA side-report on Tuesday.

Nonetheless, March soybeans eased 4.75 cents to $9.73 ¼ a bushel, extending to 9.4% losses since a January 4 high.

The crop has also come under pressure from the start of what looks like a promising South American harvest, which will promote competition on the export markets.

'Sell rallies'

And the technical signs do not look too good either, according to Mike Mawdsley of broker Market1.

"March beans broke the trend line [on Tuesday]," he said.

If the contract falls below the November low of $9.55 a bushel "we fall back to $9.00 a bushel or lower".

"The 50-day average near $10.28 now looks about a light year away! Sell rallies," he advised.

Wheat, meanwhile, proved relatively resilient, losing a mere 3 cents to $5.32 ¾ a bushel for March delivery, and remaining well above its low in the last session.

The grain had some support from the USDA report in data showing the lowest winter wheat sowings since 1913.

Palm plays catch up

Kuala Lumpur palm oil, however, played a little catch up with soy, its rival in the vegetable oil market, and set course for its fifth successive negative close.

Besides the weakness of soy, and crude – one of palm oil's uses is in biodiesel – the market is still somewhat sore from Monday's data showing a 16% jump in inventories in Malaysia, the world's second-biggest palm oil producer.

And the price of soyoil in China, a major importer of palm as well as soy, tumbled 2.5% on the Dalian exchange.

March palm oil stood down 49 ringgit at 2,507 ringgit a tonne, taking its losses since a high last week to 8.1%.


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