U.S. grains tumble as fiscal deal euphoria fades

U.S. grains tumbled on Wednesday, led by a three per cent slump in wheat prices, as a rebound in the dollar wiped out early gains fueled by U.S. lawmakers acting to prevent massive tax increases and spending cuts.

Soyoil was the only market that held strong throughout the first trading day of 2013, supported by U.S. lawmakers extending a tax credit for biodiesel through 2013 at a cost of more than $2 billion (all figures US$).

A firming trend for the dollar after its initial drop added pressure to grain futures. The dollar index had traded nearly a half per cent lower early on Wednesday but recovered to trade up 0.15 per cent as of 1 p.m. CST.

The dollar has an inverse price relationship with grains as any strengthening of the greenback would make U.S. commodities cost more in foreign currencies, affecting exports from the world’s largest exporter of corn, soybeans and wheat.

"It was a bit disappointing with the strong start but it was quickly evident there was no follow-through," said Shawn McCambridge, an analyst for Prudential Commodities.

"When the outside markets began stalling and the dollar started recovering, we reverted to the fundamentals of poor demand for grains."

In initial dealings, soybeans rose one per cent, led by a nearly three per cent rally in soyoil because the fiscal legislation included continuation of favourable tax perks for the biodiesel industry.

January soyoil leaped to a three-week high after the lawmakers included a $1 per gallon tax credit for biodiesel that will run through 2013 at a cost of more than $2 billion.

Soyoil posted the biggest one-day percentage advance in over four months.

The credit was one of an eclectic mix of handouts, take-backs and special-interest tax breaks included by Congress in the last-minute deal to avoid the automatic spending cuts and tax increases that otherwise would have begun the year.

The new legislation boosted gold to a two-week peak, drove crude oil higher and the U.S. stock market rose nearly two per cent.

Chicago Board of Trade January soyoil was up 2.77 per cent, or 1.36 cents per pound, at 50.52 cents, January soybeans were down 13-1/4 cents per bushel at $14.05-1/2.

CBOT March corn slipped 7-1/2 cents to $6.90-3/4 per bushel and March wheat was down 23 at $7.55.

Grain markets had been closed New Year’s Day and reopened at 9:30 a.m. CST on Wednesday.

Markets choppy

Wheat posted the biggest gain last year among the 19 commodities in the Thomson Reuters-Jefferies CRB index, soaring 19.2 per cent despite falling for three straight months and tumbling 7.9 per cent in December alone.

Traders were concerned about unfavourable weather affecting wheat crops from Australia to Europe throughout the year and the drought in the U.S. winter wheat growing regions.

Soybeans were the second-best gainer, up 18.4 per cent. Corn rose eight per cent, notching its fourth straight year of gains despite ending 2012 with a five-month losing streak.

Corn and soybeans set record highs last year due to the drought, despite a rapid planting pace in the spring after an unseasonably mild winter.

Wheat was pressured by poor export demand for U.S. supplies on Monday and soybeans dropped on favourable crop weather in South America. On Monday, the markets had found support in thin New Year’s Eve volume on hopes that lawmakers in Washington found a solution to avert the so-called fiscal cliff.

Failure to reach a deal could have weakened the global economy and further roiled demand for U.S. commodities.

Wheat, corn and soybeans have outperformed the CRB, which was down 3.3 per cent for the year.

— Sam Nelson reports on the commodity markets from Chicago for Reuters. Additional reporting for Reuters by Mark Weinraub in Chicago and Chuck Abbott in Washington.

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