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New Year comes early for jumping food commodities

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Soybeans took over from corn as the leader of the Chicago pack, and softs did even better, as traders looked beyond the prospect of floppy pre-Christmas trading to, fingers crossed, fund buying in January.

"There will be continued support [for soybeans] in this market as long as exports remain good to China," Allendale, the US broker, said in comments ahead of the opening.

And support there was with the January contract ending 1.9% higher at $10.55 a bushel.

That surprised many investors, who have been issuing warnings of directionless trading in thin volumes as the seasonal break approaches.

Happy New Year?

But it was the prospect of January setting up a November-style, beginning-of-the-month farm commodities rally which got traders excited.

"Many agricultural markets are higher today," Vic Lespinasse, the analyst, said.

"Some traders think this is a reflection of the thinking that the funds will be big buyers in agricultural markets either later this month or early in the New Year.

"This is causing some would-be sellers to refrain from selling and causing some of the more aggressive traders to buy now ahead of this hoped-for fund buying. It is difficult to explain today's gains otherwise."

Sure, such logic failed at the start of this month. But January is a new year too - right? And many analysts, in institutions from Barclays Capital to UBS, have been bullish on commodities.

Juice refreshed

Investors seemed to think so. The jump was felt well outside Chicago, with sugar up 4% in London and 5% in New York, where coffee added 2%, and orange juice soared 5% to its highest since February 2008.

And this was without much help from the dollar, which fell only marginally on foreign exchange markets.

There were some fresh fundamental concerns, such as a lowball sugar output estimate for Brazil, and waning cocoa bean deliveries in top-tanked producer Ivory Coast.

But broad-based buying, much by funds, seemed a common theme across the markets.

China factor

In Chicago, funds were buyers of 3,000 soybean lots with an hour to go.

And there were fundamental reasons to buy, for those who wanted. Data from the National Oilseed Processors Association showed America's soybean crush at 160.3m bushels for November, significantly higher than the market had expected.

That took the chill off a soft close for Chinese soybeans overnight on the Dalian exchange, after a government official said the country might release soyoil or rapeseed oil from state stocks to stabilise prices.

Indeed, Chicago soyoil remained under the weather despite soybeans' strong performance, and a 3% jump by soymeal too.

Extra plantings

Corn continued to gain some support from the delayed harvest, and expectations for growing demand next season, driven by ethanol demand.

"It is widely thought corn acreage needs to increase roughly 2m acres next year over this year's 86.4m acres due to increased ethanol production and demand," Mr Lespinasse said.

The March contract ended 1.0% higher at $4.08 ½ a bushel.

Sterling effort

Wheat for March added 1.1% to $5.43 ½ a bushel, despite continued warnings from analysts about the size of US and global inventories.

"Ending wheat stocks could grow to 950m bushels," US Commodities said.

"Wheat remains uncompetitive."

In fact, it was London wheat which was a notably poor performer, sliding £1.80 to £105.30 a tonne for January and £2.50 a tonne for March.

A rise in sterling, as fears receded that UK banks would be hit by Dubai fallout, was largely to blame.

Paris wheat for January ended E1.25 higher at E130.00 a tonne.


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