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Morning markets: crops suffer regulatory hangover

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Crops put in a mixed start on Thursday, helped somewhat by a rebound in China shares, but with some concerns lingering over the regulatory moves which prompted a sudden selloff during the last session.

Shanghai stocks stood 3.3% higher at 06:00 GMT, recovering most of the ground lost on Wednesday and easing jitters over China, a big buyer of US soybeans despite being the country investors are relying on to power global economic recovery.

A relief rally sent Tokyo shares up 1.8% by the close. New York crude for September, meanwhile, added $0.22 to $72.64.

Position limits

However, investors were still mulling the impact of a Commodity Futures Trading Commission assault on big holders of wheat contracts.

The US futures regulator on Wednesday revoked exemptions which had allowed two firms to hold more contract positions than the 6,500 limit laid down by federal law.

"Position limits promote market integrity by guarding against concentrated positions," CFTC chairman Gary Gensler said, sparking a sudden sell-off in Chicago.

Impact assessment

While markets recovered some of their poise, it remains uncertain how long the impact of CFTC-mandated position closing will last.

Although some brokers took solace in the knowledge that their clients would not be affected by a clampdown on positions above 6,500 lots, others mulled the impact of a wave of closures of large positions.

The CFTC said it would "work with each of these entities as they transition to positions within current federal speculative limits".

The firms were Deutsche Bank and, reportedly, Gresham Investment Management.

According to Reuters, the two firms hold 60,000 contracts between them.

Crop reaction

Wheat - unsurprisingly the crop worst affected on Wednesday by the CFTC announcement, dropping at one point to a new 2009 low – remained under pressure, slipping 1 cent to $4.65 a bushel for September delivery.

December wheat was 1.25 cents lower at $4.92 ¼ a bushel.

However, corn did a touch better, adding 1 cent to $3.21 a bushel for September delivery, and 0.5 cents to $3.28 a bushel for December.

Soybeans were 8 cents higher at $10.05 a bushel for September, and 7.75 cents up at $9.65 ½ a bushel for the new crop November contract.

Palm bounces

In Kuala Lumpur, November palm oil closed the morning session on the Bursa Malaysia derivatives exchange up 1.4% at $2,330 a tonne.

Short covering was credited for the rise, following a 9% drop in prices within a week despite signs of market tightness.

Asian festivals are expected to boost demand for palm oil at a time when production in Malaysia, the world's second biggest producer, is flagging and stocks declining.


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