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Morning markets: fund rumours limit crop declines

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The last shall be first. Wheat, the weakest pit among Chicago's big three in the last session, was the only one to make gains in early deals on Wednesday, as corn and soybeans found a stronger dollar harder to deal with.

The greenback neared $1.43 against the euro, and hit a two-month high against the yen, as currency traders continued to react to raised expectations of US interest rate rises. A stronger dollar makes assets, such as crops, denominated in the currency less affordable on export markets.

That was one reason for corn's decline by 1 cent to $4.16 a bushel for March delivery as of 07:00 GMT, another being a touch of profit taking.

Fears for the remaining 650 bushels or so of the US crop waiting to be harvested, some 500 bushels of which is under snow, have been pretty well factored in. Maybe too much so, some traders believe.

'Farmer selling'

Soybeans eased 6.5 cents to $10.31 ½ a bushel for January and by the same margin to $10.40 ½ a bushel for the better-traded March contract. (Although we are talking thin, holiday-season volumes for all.)

And this despite strength on China's Dalian exchange, where soybeans added 0.9% to a fresh 15-month high. Prices in China, the biggest importer of US soybeans, have become more keenly watched abroad.

But Chicago prices are coming under pressure from concerns over Chinese imports next year, with some reports that the country is just about done as far as stockpiling goes, as well as the prospect of Argentine and Brazilian supplies beginning to come onstream next month.

Farmers have also been using the strong market as an opportunity to sell.

"We have seen a lot of farmer selling in the past few trading sessions and expect this to continue at the start of the year," Justin Kelly, at broker eHedger, said.

"We should see farmer selling pick up dramatically after the start of 2010 as farmers free up some cash for [the] tax season."

Bigger Argentine crop?

Indeed, on fundamental grounds, the bigger surprise may be the resilience of wheat, which added 3 cents to $5.44 a bushel.

And this despite some talk that Argentina's 2008-09 crop was higher than estimates, to judge by export data.

"At least one analyst is suggesting that Argentina's wheat harvest last year was almost 1m tonnes better than previously thought," Kevin Kjorsvik at Benson Quinn Commodities, said, without mentioning names.

Fund rebalancing

But then, what does seem to have been a feature of recent markets is the expectation of fund buying, which have tended to prevent bear runs going to far.

Some of this expectation is based on new money going into funds, and some on so-called rebalancing, in which indexes and funds attached to them rejig assets to account for price movements which have taken weightings away from stated percentages.

"Deutsche Bank has already done their rebalance but the Dow Jones/UBS and S&P/Goldman Sachs Indices will be adjusting portfolio weights from January 11 -15 and January 8-14 respectively," Benson Quinn's Kim Rugel said.

"These new weightings are readily available to the public but the exact size of positions is little known. Some are estimating these two funds may need to buy upwards of 20,000 contracts of wheat and soybeans and 40,000 to 60,000 corn.

"Many are speculating that this buying has already taken place, or at least some of it has begun to alleviate the impact this buying could have on the market."

Holiday feeling

Such thoughts appear less of a feature in Kuala Lumpur, where palm oil stood little changed amid some reluctance to take positions before trading restarts in earnest after the end-of-year holiday season, traders said.

And this, again, despite a rise, albeit a small one at 0.3%, in Dalian prices of soyoil, palm oil's main rival in the vegetable oil market.

The benchmark March contract stood 4 ringgit higher at 2,594 ringgit a tonne on the Bursa Malaysia Derivatives Exchange.


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