Wheat and soybean futures edged lower on Monday, but ended the year as the best performers in a basket of commodities, including crude oil, as demand lifted prices and the worst drought in half a century crimped supplies.
Wheat posted the biggest gain this 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 wheat crops from Australia to Europe due to weather problems throughout the year and the poor start in the U.S. winter wheat regions as drought persisted in the southern Plains.
Soybeans were the second best gainer, rising 18.4 per cent, while corn was up 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 this year amid the drought, which came on the heels of a rapid planting pace in the spring due to an unseasonably mild winter.
Wheat was pressured by poor export demand for U.S. supplies on Monday while soybeans dropped on favorable crop weather in South America but the market 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.
"If we get some sort of reconciliation out of the process, it would be price positive for most of our markets," said Bill Gentry, a broker with Risk Management Commodities in Lafayette, Indiana. "It would be a sigh of relief."
The failure to reach a deal could weaken the global economy and further roil demand for U.S. commodities.
Wheat, corn and soybeans have outperformed the CRB, which was down 3.3 per cent for the year.
The grain markets have pulled back sharply in recent months, with soybeans down 11.4 per cent in the fourth quarter, its worst quarter since the third quarter of 2009. The loss broke a streak of four positive quarters in a row.
Corn was off 7.3 per cent in the fourth quarter due to weakening demand from exporters as well as from ethanol producers, and wheat has fallen 13.8 per cent over the last three months of the year. Both grains notched their worst quarterly performance since the second quarter of 2011.
The weakness in wheat worsened in December as export demand failed to show up even as prices retreated near six-month lows. The front-month contract was down 7.9 per cent for the month, the biggest monthly decline since September 2011.
Short covering limited Monday's decline in wheat, traders said.
CBOT March wheat settled down 3/4 cent at $7.78 a bushel. CBOT January soybeans were 5-1/4 cents lower at $14.18-3/4 a bushel and CBOT March corn was 4-1/4 cents higher at $6.98-1/4 a bushel (all figures US$).
Bargain buying lent support to corn prices.
"Everybody is waiting for the outcome of U.S. budget talks and there is some year-end positioning," said Serene Lim, a commodities analyst at Standard Chartered Bank in Singapore.
U.S. President Barack Obama said on Monday that a deal with Congress to avoid the U.S. "fiscal cliff," with its tax increases looming at midnight, was close, but he warned that it was not yet complete.
The outlines of a deal in the U.S. Senate include raising income tax rates for individuals making more than $400,000 a year and households making more than $450,000 a year, but a sticking point remains on how long to delay automatic spending cuts to defense and domestic programs.
-- Mark Weinraub
covers the grain futures markets for Reuters in Chicago.