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Morning markets: oilseed prices gain, while grains wallow

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Some investors are talking of a bit of a so-called "Santa rally" kicking in to financial markets this month.

For instance, Jonathan Barratt, managing director at Commodity Broking Services in Sydney said: "I think we're getting ready for a strong Christmas rally in copper. We're seeing a higher level of optimism."

And there were some positive macro-economic factors around to support buying in risk assets such as commodities, with Ireland and Italy making progress in austerity measures needed to get deficits under control, and fiscal integration, seen by many as paramount if the eurozone is to survive, rising up the agenda in the eurozone.

There were the positive US jobs data on Friday to factor in too.

Indeed,

shares

had a generally positive start to the day, rising 0.6% in Tokyo, 0.4% in Seoul and up 0.8% in afternoon deals in Singapore.

The safe haven of the

dollar

eased 0.2%. And Brent

crude

added 0.8% nearly to hit $111 a barrel as of 08:45 GMT.

'Pockets of dryness'

But agricultural commodities had trouble following suit.

Soybeans

put a firm foot forward, adding 0.6% to $11.42 ¼ a bushel for January delivery, amid continuing, if not unanimous, ideas of dryness in South America.

While South American weather has been "mostly favourable for rapid planting and early crop development, the soybean crop will be entering critical yield determining phase near end of December and early January requiring ample soil moisture", Kim Rugel at Benson Quinn Commodities.

"Pockets of dryness are developing and will see market adding risk premium if drier outlook continues to confirm beyond December 15."

Luke Mathews at Commonwealth Bank of Australia also highlighted "recent dryness across Brazil", but added that "timely rainfall is still forecast this week".

Short liquidation?

Furthermore, speculators still have a relatively large net short position in soybeans, regulatory data showed late on Friday, a factor which may support buying.

Large numbers of short positions imply a large number of unfulfilled buying transactions needed to close the positions.

This is one reason given for

wheat's

firm performance last week.

"I do understand concerns that much of the trade share regarding the possibility of the fund community liquidating a net short position," Benson Quinn's Brian Henry said.

"There has been a fair amount of buying Chicago wheat, while selling the corn market. I believe this relates to the short fund position in Chicago wheat."

'Eastern European-Ukrainian drought'

But has there been enough short covering for now?

Friday's regulatory data, from the Commodity Futures Trading Commission, confirmed that speculators' net short in Chicago wheat futures and options fell by nearly 7,400 contracts to 43,200 in the week to last Tuesday.

And investors did not seem too eager to want to cover more, despite the fundamental concerns increasingly raising their head, with dryness in Ukraine prompting the farm ministry to cut its forecast for 2011-12 grain exports and, according to data published by the UZA grain traders' union, to leave the country a net importer of wheat in 2012-13.

"The eastern European-Ukrainian drought is beginning to have more influence on the market," Mr Mathews said.

In Iowa, Market 1's Mike Mawdsley highlighted that he was "starting to hear more talk about the dryness in the Ukraine wheat area".

'Plagued by high moisture issues'

There is continuing talk in Australia of harvest damage from rain too, with grain handlers CBH, which controls the market in Western Australia, the country's top grain growing state, reporting that one of its four zone, Esperance, has "once again been plagued by high moisture issues".

Still, Chicago's March wheat contract dipped 0.4% to $6.22 ¾ a bushel.

That allowed

corn

to close its discount, by easing a relatively modest 0.1% to $5.94 ½ a bushel for March delivery.

Corn, as a major feedstock from bioethanol plants, received some support from stronger oil.

Also, investors have already sold down a stack of their net long in the grain, questioning appetite for further sell-downs.

The net long position in corn held by large speculators as a whole dropped to a 17-month low, the CFTC data showed.

Palm squeeze

It was left to Kuala Lumpur-listed

palm oil

to fly the flag highest for agricultural commodity bulls, adding 1.6% to 3,110 ringgit a tonne for February delivery.

The gains followed heavy rains over the weekend in Malaysia's Perak state and in Sarawak in Borneo.

In Singapore, Phillip Futures analyst Ker Chung Yang noted talk of "lower production in November due to La Nina driven rains and a seasonal decline in yields, while demand for palm oil is seen picking up soon as China will replenish its stocks ahead of the Chinese New Year festival in January".

Furthermore, the market was still feeling a glow from a forecast by influential analyst Dorab Mistry on Friday that prices will hit 3,300 ringgit a tonne next month, thanks to weaker output and normal demand.

By Agrimoney.com

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