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Morning markets: will corn get a double buy boost?

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Corn set course for a third successive fall as the shock of Washington's roll of bearish data on Tuesday continued to reverberate through the market.

The one straw bulls had to clutch at was the prospect of another late buying spree by the index funds which are undertaking their annual rebalancing act, which sees them buy up 2009 laggards such as grains to bring up their weighting in multi-commodity funds back up to base percentages.

They emerged again in the last session to save help corn from another mega-loss – it was down 6% at one point, but closed a more modest 2% lower – as traders continued to react to the surprise rise in the official US estimate of its 2009-10 corn harvest.

"Big index fund buying rallied prices into the close, with most pits making new highs for the day," Vic Lespinasse, at said.

'Play catch up'

And many analysts expressed hopes for similar support on Thursday.

Indeed, maybe even for a double dose assuming that the index funds which held off selling on Tuesday - when Washington's data sent corn down the exchange limit, implying that buyers who waited would be rewarded with yet lower prices – still have to finish their business this week.

"The index funds reportedly did no buying on Tuesday, and will need to play catch up as we proceed through the week with them possibly being done by the close on Friday," Jon Michalscheck at broker Benson Quinn Commodities, said.

Spread bet

As an aside, he also noted the rise in open interest, notably in contracts for 2010 and 2011 crops.

"At face value it would seem there must have been new shorts entering the trade," he said.

"But at second glance it looks more likely that those traders that could not offset risk in the old crop contracts, due to them being limit, down elected to lay it off in the new crop months and at some point will bring it back into the front end of the market."

Certainly, corn was continuing to struggle as of 08:00 GMT, with the March lot down 3.75 cents at $3.80 ¼ a bushel.

'Market psychology negative'

Not that soybeans or wheat were doing much better.

March soybeans stood 5.75 cents lower at $9.86 ¾ a bushel, as hopes for prices presented by persistent rain in Brazil, which is in the early stages of its soy harvest, fizzled out.

The weather does not look yet like preventing Brazil from reporting a record harvest, and ending America's dominance of the export market for a while.

March wheat, meanwhile, eased 7 cents to $5.30 a bushel.

"The overall trend has changed and the market psychology is negative," Darrell Holaday at Country Futures said, adding that rallies "will be difficult to sustain" after today given that it marks, on some reports, the end of the fund rebalancing season.

Swaying palm

In Kuala Lumpur, palm oil was finding rallies tricky to sustain too, bouncing in and out of negative territory as the bears who believe palm prices have still further to fall battled with those covering short positions, with some traders viewing the market as technically oversold.

The benchmark March contract recovered to stand up 5 ringgit at 2,515 ringgit a tonne, but not before heading lower to 2,499 ringgit, and hitting 2,544 ringgit on the upside.

At its 08:00 GMT level, it was 7.8% below the seven-month high hit last week.

Palm has been dragged lower by data showing robust Malaysian inventories and sagging exports as well as the tumbles in Chicago crop prices.


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