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Morning markets: record China corn price lifts US prices too

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There had been a theory that

corn

had been held up by a short squeeze in the expiring March contract, meaning that, with a dearth of fresh sellers around, those with short positions were having to pay up to cover.

It took a dent on Wednesday when the March contract weakened at the finish.

"It is interesting to note that the short squeeze is over in the March corn as it has been lower all day, and the May contract has been higher," Darrell Holaday at Country Futures said towards the close of the last session.

And it suffered a further blow on Thursday when, with the March contract now expired, the May lot got off to a strong start in its opening hours as the front contract.

Dalian prices

One spur was a slight retreat in the

dollar

, whose recovery this week to its highest levels in two months has been a bit of a headwind to dollar-denominated commodities, making them more expensive to buyers on other currencies.

The greenback was 0.1% lower at 08:50 GMT, even if only on profit-taking.

But another was a jump in corn prices on China's Dalian exchange.

The May contract, now the front month on the Dalian too, rose 0.7% to 2,485 yuan ($392) a tonne, a record for a spot lot (besides being a high for the contract itself). It is also equivalent to $9.96 a bushel.

The best traded September contract added 1.1% to 2,470 yuan a tonne.

China deals?

That gave hope to investors who have been buying Chicago corn amid rumours of Chinese purchases from the US, but failed to receive that much (240,000 tonnes of US corn sold to "unknown destination", presumed China) satisfaction.

"The trade has been chasing daily rumours for well over a week that Chinese domestic users are showing interest in importing, corn but there has been no official word from [Chinese authorities] with regards to whether the government has committed to buying additional tonnage," Benson Quinn Commodities said.

He added that "the trade will be canvassing" weekly US export sales data "to detect if any sales to China were actually done that had their name on them".

(The trade expectation is for sales of 600,000-800,000 tonnes, up from 506,000 tonnes the previous week, but with the rise largely down to confirmed sales to South Korea.)

'Overstated estimates'

Of course, what has been said by Chinese officials is that they have plenty of corn.

However, as Luke Mathews at Commonwealth Bank of Australia noted, "there is speculation that official Chinese corn production estimates may have been overstated, resulting in greater need for import".

And these would only be given greater credence by buyers having to pay up for Dalian corn.

Chicago corn for May stood 0.8% higher at $6.63 ¾ a bushel, edging nearer its 200-day moving average, at a little over $6.68 a bushel, which it has not touched since November.

'Funds have been buying'

That cheered

wheat

- a rival in feed markets, and at an unusual discount - which added 0.6% to $6.47 ½ a bushel for May delivery.

And it boosted

soybeans

too, which are already well above their 200-day line, besides 20-day, 50-day etc moving averages as well, boosted those extended concerns over South American harvests.

Besides, on a technical basis, the May contract's early run on Thursday did it the favour of breaking convincingly through the $13.55 ½-a-bushel mark which had been seen as a key technical point.

The lot hit a six-month high, for a spot contract, of $13.67 ¾ a bushel before easing to $13.66 a bushel, up 0.7% on the day.

Benson Quinn said: "An extremely overbought May soybean contract has given few signs of technical weakness developing.

"The trade may feel that the market is in need of a correction, but there doesn't seem to be a lot of participants volunteering to establish new speculative short positions near these levels."

'Path of least resistance'

At broker Market 1, Mike Mawdsley added: "If funds buy markets go up. It's that simple. Funds have been buying, soybeans,

soymeal

, and

soyoil

.

"Until funds decide to sell, the path of least resistance has been up."

And in fact soymeal was higher too, up 0.5% at $368.90 a short ton for May, while Chicago soyoil added 0.2% to 54.88 cents a pound for May.

That helped rival vegetable oil palm oil set a fresh nine-month high in Kuala Lumpur of 3,413 ringgit a tonne, for the benchmark May lot, before easing to 3,406 ringgit a tonne, a gain of 0.6% on the day.

Smaller gains

Soft commodities found it more difficult to join in the party, with

cotton

for May adding 0.1% to 87.23 cents a pound in New York.

While the fibre weakened on China's Zhengzhou exchange overnight, it gained support from talk of poor deliveries in India, with arrivals at 23.7m bales so far in 2011-12, down 6% year on year - if a drop probably down to farmer hoarding rather than a poor crop.

Raw

sugar

for May added 0.1% to 24.46 cents a pound, feeling some pressure from talk of further Indian exports, although speculation of such a move has been around for a while.

Data later

Later on, the US Department of Agriculture will released export sales data which, besides being expected to show 600,000-850,000 tonnes for corn (see above) is estimated at 650,000-900,000 tonnes for soybeans, down from a bumper 1.6m tonnes the week before.

For wheat, export sales are pegged at 400,000-600,000 tonnes, allowing a drop from the previous week's 578,000-tonne figure, which beat forecasts.

Wheat will also see the results of the latest Egyptian grain tender, at which US supplies are seen as having a good change of securing trade.

By Agrimoney.com

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