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Morning markets: wheat prices test theory of link to copper

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There is a theory that, in times of market stress such as this, correlation between price movements of different commodities grows.

Investors are seen as adopting broad "risk on" or "risk off" strategies, rather than discerning differences between raw materials and their fundamentals.

Wheat

and

copper

are often seen as developing a particularly strong pairing, particularly if taken on a week by week basis.

If that observation is to prove true this week, wheat should be on for a storming performance.

Brighter sentiment

For three-month London copper added a further 1.5% in early deals on Friday, to take its gains for the week nearly to 5%.

As of 07:15 GMT (08:15 UK time), Chicago's benchmark December wheat contract was up 0.5% at $6.18 ¾ a bushel. Sure, that reversed some of its losses of the last session, but took its gains for the week to a miserly 1.6%.

And both faced a broadly improved macro-markets picture, with the Nikkei

share

index adding 1.0%, Seoul shares 2.9% and Sydney stocks 2.3%, while the

dollar

eased a touch.

As an extra sign of risk-on sentiment, the Vix gauge of fear closed Thursday down 4.1% at 36.27 points, with 40 being seen as an alarm bells level.

Rain question

But wheat's problem is, well, rain for drought-hit US hard red winter wheat districts is one, although it is not clear how much precipitation will fall.

"Rain is forecast in the dry hard red winter wheat belt today and over the weekend, contributing to the bearish mood," Luke Mathews at Commonwealth Bank of Australia said,

"But the dry bias is expected to return thereafter according to most forecasters."

At Benson Quinn Commodities, Brian Henry said that regions west of a line running from central Nebraska to the Texas panhandle "will continue to struggle with dry conditions", although areas would at least see cooler temperatures.

'Eyeing the Wasde'

Another is the prospect of the US Department of Agriculture's monthly crop estimate updates, summarised in its Wasde report, due on Wednesday, which has spawned the latest wave of crop yield updates.

(Linn Group on Thursday raised by 1.2 bushels per acre to 42.2 bushels per acre its forecast for the US

soybean

yield this year, while estimating production at 3.086bn bushels. The current USDA estimates are 41.8 bushels per acre and 3.085bn bushels.

For

corn

, Linn trimmed its yield estimate to 148.9 bushels per acre from 149.1 bushels per acre, estimating production at 12.371bn bushels. The USDA figures are 148.1 bushels per acre, and 12.497 bushels.)

"Traders will be eyeing the Wasde report to see if the USDA is expecting demand destruction in the agri complex," Mr Mathews said.

'Expanding harvest'

Indeed, that was seen as one reason why wheat's Chicago peers were even more reluctant to exploit the better market mood – harvest pressure being another.

"Traders will probably remain cautious of extending risk in the face of an expanding harvest, particularly without a supportive fundamental feature," Lynnette Tan at Phillip Futures said.

Weather in the Midwest has remained dry for, speeding the harvest and raising some questions over storage, even if looking wetter in the south.

Corn for December dipped 0.5% to $6.02 ¼ a bushel, while soybeans for November eased 0.5% to $11.58 a bushel.

'Poor demand'

In Kuala Lumpur,

palm oil

continued its downward path too, falling 0.4% to 2,798 ringgit a tonne for December delivery, if avoiding for the first this time this week setting a one-year low.

Indeed, the drop are seen as leaving palm oil with an unusually large discount to rival

soyoil

, which for December stood 0.3% higher at 49.30 cents a pound in Chicago

And in New York,

cotton

added 0.4% to 103.11 cents a pound, continuing its somewhat rangebound trading, and avoiding taking too much slight at Thursday's data showing US weekly export sales falling to 88,500 bales from 222,600 bales a week before.

"Poor demand remains the most significant headwind to cotton values," Mr Mathews said.

The fibre also faces potential technical resistance at 104.43 cents a pound, its 50-day moving average.

By Agrimoney.com

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