Asia Grain Outlook on Monday: Mixed cues from dollar, index rebalancing

 

 

Grain prices are likely to be moved by mixed signals in the next few weeks from the U.S. dollar and commodity index rebalancing.

 

Grain futures benefited when the U.S. dollar hit a 15-month low in late November, as a weak dollar makes U.S. agricultural exports more competitive on the world market.

 

But now that analysts expect the dollar to extend its rally against the euro and the yen, grain traders are on alert.

 

"The dollar is likely to be the next major story for grains, especially as other news flows are typically slow during the holiday season," said an analyst with a commodities trading house in Singapore.

 

The dollar surged to its highest level in more than three months against the euro and climbed to a six-week high against the yen Friday, extending a trend that began early this month.

 

Traders said it's likely to gain further this week if U.S. data such as existing home sales Tuesday and durable goods orders Thursday show improvement.

 

Besides the influence of the dollar, which is expected to weigh on agricultural futures, analysts said the rebalancing of commodity indices may have a significant impact as well, albeit in the opposite way, on grain prices.

 

The rebalancing of the S&P GSCI and DJ-UBS indices is expected to raise CBOT wheat and corn futures by around 6%, according to a research report by Standard Chartered Bank released Friday.

 

In fact, grains and soybeans should be the main beneficiaries in the process of funds' rebalancing investments, in which an estimated $6.2 billion worth of futures contracts will be sold and an equivalent value bought, said Helen Henton, the bank's head of commodity research, in the report.

 

However, as some investors may anticipate the changes by selling or buying in advance, the exact price impact of the forced buying and selling of futures contracts necessitated by index rebalancings is difficult to predict, said the analyst in Singapore.