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Morning markets: crops soften as fund hopes wane

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Crops headed lower once again in both Chicago and Kuala Lumpur as the prospect that index funds had finished their purchasing spree gave investors another reason to give up hope.

The annual rebalancing exercise by index funds - which for grains has meant buying to bring their weightings in multi-commodity funds in line with those of better performers such as copper and sugar – was some antidote to the bearish epidemic stemming from Tuesday's Washington data.

However, it now appears to be over – although, it should be noted, that assessments from brokers of the extent of the rebalancing act, and of its impact, have been largely in disagreement.

Rebalancing finished?

In the last session, "index rebalancing, which was hoped to be a supportive factor was noticeably absent especially on the close", Dave Lehl at Benson Quinn Commodities.

"Funds are said to have completed their rebalancing for now," Mike Mawdsley at rival broker Market 1 said.

However, at, Vic Lespinasse said index funds were "expected to buy corn late" on Friday.

Still, that did not stop the grain heading lower in early deals, down2.25 cents at $3.78 ¾ a bushel for March delivery, taking its losses since its close on Monday – the day before the US Department of Agriculture's momentous crop data – to 11.4%.

'Further price erosion'

What crops need is help from outside to counteract the impact of USDA statistics showing 2009-10 corn and soybean crops better than expected, global wheat stocks up, and plenty of acres up for grabs for spring sowing.

"Without help from the outside markets, further price erosion also seems likely," Mr Lehl said.

But outside markets did not oblige, with the dollar strengthening a touch, making US exports less competitive, and oil weakening, bad news for the many crops which are used for making biofuels.

Wheat slid 4.75 cents to $5.23 a bushel, taking its losses for the four days to 8.6%.

Soybeans had the extra disincentive of weak prices on the Dalian exchange in China, the world's biggest buyer of the oilseed. It is also continuing to suffer from the prospect of a bumper harvest in South America.

The March contract stood 2.25 cents lower at $9.81 ¾ a bushel. Nonetheless, its losses for the week, at less than 3%, have been relatively small, protected somewhat by the continuing strong US soybean exports, as data on Thursday showed.

Exports rise

Malaysian palm oil has also enjoyed an uptick in foreign demand, with exports rising 9.8% in the first half of January according to Intertek Testing Services, with rival Societe Generale de Surveillance pegging the figure at 2.6%.

However, traders shrugged off the data, saying it was within expectations, and took more notice of the easing oil price.

March palm oil eased 2.3% to 2,472 ringgit a tonne, taking its losses since Monday to 4.3%.


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