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Morning markets: crops retreat into December

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Many traders had been banking on a first-day-of-the-month rally as Tuesday ushered in December and, for some funds, a new accounting period and pot of money to invest.

It had yet to appear in Asian trading hours, when profit-taking was more of the theme, depressing corn and wheat, the best performers in the last session.

That said, analysts prepared investors for volatile trading ahead, through December, even though the dollar was doing its best to promote stability by steadying at about $1.50 against the euro.

"Reallocation of money from one commodity to the next combined with thin holiday markets should continue to cause sharp prices swings," said Justin Kelly, analyst at eHedger, the US broker.

Ethanol ruling

And Tuesday's agenda holds a potential cause of big price swings in corn – a US decision on whether to increase the blending rate of ethanol to 15%.

The final figure will have a big impact on demand for corn, used in making bioethanol.

"However, some feel that they will increase the rate to 12% and some feel they will simply push back their decision," Mr Kelly said

Indeed, a delay seems to be the expected outcome, from comments of other analysts, with many not expecting a decision until well into 2010.

At 07:45 GMT, corn was 4 cents lower at $3.98 ¾ for the soon-to-expire December contract, with the better-traded March lot off 3.5 cents at $4.14 a bushel.

The weekly US crop progress report showed continued harvest headway, if slow, with 21% of the crop, equivalent to about 2.7bn bushels of corn, yet to be combined.

Funds cover

News on wheat was mixed, with the first notice day for the December contract showing large deliveries of 4,935 contracts, typically a bearish sign.

However, traders had expected a large number, given the price which appears far bigger than fundamental supply and demand dynamics imply.

Meanwhile, regulatory data showed traditional funds cutting short positions on Chicago wheat by 4,957 contracts to 19,915 lots.

Wheat for December stood 6.5 cents lower at $5.51 a bushel, while the March lot was 4 cents down at $5.84 ¾ a bushel.

Technicals vs fundamentals

Soybeans put on a more resolute show, flat at $10.60 ½ a bushel for January and 1 cent higher at $10.67 a bushel for March.

While coming under pressure from selling by farmers after the newly-finished US harvest, prices have remained supported by fund buying.

And this besides the prospect of a huge Argentine and Brazilian crop coming onstream early in 2010.

"Technical traders are looking to $11.05 a bushel, the June highs, as the next upside objective while fundamental traders feel current supply-demand issues imply a truer value near $8.00-8.80 a bushel if record crops in South America are realized," Kim Rugel at broker Benson Quinn Commodities, said.

Key conference

However, oilseed partner palm oil was lower in Kuala Lumpur in light volumes, with many traders said to be keeping to the sidelines ahead of a key conference.

The three-day Indonesian Palm Oil Conference and Price Outlook 2010 gathering will start on Wednesday in Bali, with speakers including high-profile analysts such as James Fry and Oil World's Thomas Mielke.

Benchmark February palm oil stood 10 ringgit lower at 2,462 ringgit a tonne on the Bursa Malaysia Derivatives Exchange.


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