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Morning markets: vegetable oils lead crops ahead

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A weakening dollar set crops off to a firm start to the week, with another strong performance from Kuala Lumpur palm oil helping soybeans lead the way in Chicago.

The greenback, which rocketed 1.7% against a basket of currencies on Friday, lost some of that ground in early deals on Monday as profit-taking set in.

The euro topped $1.49 at one point, an improvement on the near-$1.48 bottom it reached during Friday's dollar revival, the best for nearly a year, which was prompted by strong US jobs data.

A weaker dollar provides a helpful backdrop to prices of US exports such as crops by making them more affordable to foreign buyers.



The vegetable oil complex, however, was particularly cheerful, with palm oil continuing to bask in forecasts from two leading analysts of prices strengthening next year.

Dorab Mistry, head of vegetable oils trading with Godrej International, said palm oil would hit 2,800-3,000 ringgit a tonne in the first quarter of next year as demand strengthens in a year when the El Nino weather could, for the first time, send Malaysian production lower for two successive years.

James Fry, head of LMC International in London, said prices may hit 3,200 ringgit a tonne by June, underpinned by falling stocks and a rise in crude oil, which will make palm-based biofuels more attractive.

Palm oil soared 1.7% to a fresh six-month high of 2,606 ringgit a tonne for the benchmark contract, currently February, before retreating on profit-taking to 2,572 ringgit a tonne by 07:30 GMT.

'Best fundamentals'

In Chicago, palm's rival vegetable oil maker, soybeans, were helped 17.25 cents higher at $10.60 ¼ a bushel for January delivery.

It is also being helped by better supply-and –demand dynamics, with foreign orders still rolling in during a window ahead of the South American harvest when the US has a stranglehold on supplies.

"Soybeans still have the best fundamentals at this time, and trade like it too," Mike Mawdsley at Market1 said.

Furthermore, they have some technical support too, trading well above their 50-day average.

Corn for March recovered back above this line on Monday, but only by a cent or so to $3.92 ¼ a bushel, up 3.75 cents on the day. The close-to-expiry January lot was 4.25 cents higher at $3.78 a bushel.

Big question

Wheat, meanwhile, added 1.75 cents for December, to $5.38 ½ a bushel, with the better-traded March contract unchanged at $5.58 a bushel.

Has the start of wheat's long-awaited fall from favour, on huge global supplies, begun, as the dollar revives and ends the benefits of a trade of short the greenback/long commodities trade?

"The big question now is has the economy taken a turn that will lead to a strengthening of the dollar and interest rates, resulting in a shift from money into inflation hedges in the commodities markets allowing wheat to fall on its bearish fundamentals?" Dave Lehl, at US broker Benson Quinn Commodities, said.

"Or was this just one crazy day with an unexpected unemployment report?"

He added: "It's still hard to believe that current policy doesn't maintain a weak US dollar."


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