RTRS - U.S. biodiesel tax credit revived through 2013 by Congress

WASHINGTON, Jan 2 (Reuters) - The $1 a gallon tax credit for biodiesel will run through 2013 at a cost of more than $2 billion under a provision of the mammoth legislation passed by Congress to avoid the so-called "fiscal cliff."

In reviving the credit, lawmakers made the extension retroactive to its expiration at the end of 2011. It now is set to expire at the end of this year.

The credit was one of an eclectic mix of handouts, takebacks 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 kicked in for 2013.

Iowa Senator Chuck Grassley, a prominent backer of the credit, told reporters he expects the credit will be phased out at some point but that there is little sentiment to do so at the moment.

Roughly one-quarter of U.S. soybean oil is used in making biodiesel. Some 4.9 billion pounds of soyoil are forecast for conversion to the alternative fuel during the marketing year that ends on Sept 30.

Along with revival of the biodiesel credit, Congress extended the $1 a gallon credit for diesel fuel created from biomass and a 10-cent credit available to small agri-processors who make biodiesel. The steps were estimated to cost $2.2 billion over 10 years.

Also in the bill was an extension of a $1.01 a gallon credit for making biofuels from cellulose, found in woody plants, trees and grasses. Fuel produced from algae was made eligible for the credit as well. The one-year extension was estimated to cost $59 million.

Trader's highlight

DJI - NEW YORK, Jan 2 (Reuters) - U.S. stocks kicked off the new year with their best day in over a year on Wednesday, sparked by relief over a last-minute deal in Washington to avert the "fiscal cliff" of tax hikes and spending cuts that threatened to derail the economy's growth.

In 2013's first trading session, the S&P 500 achieved its biggest one-day gain since Dec. 20, 2011, pushing the benchmark index to its highest close since Sept. 14.

Concerns over Washington's ability to sidestep the cliff had driven the S&P 500 down for five straight sessions, before signs that a resolution was near sent the benchmark index higher on the final trading session of 2012.

The CBOE Volatility Index or the VIX , Wall Street's favorite gauge of investor anxiety, dropped 18.5 percent to 14.68 at the close. The VIX has fallen 35.4 percent over the past two sessions, the biggest 2-day percentage drop in the history of the index.

The Dow Jones industrial average jumped 308.41 points, or 2.35 percent, to 13,412.55 at the close. The Standard & Poor's 500 Index gained 36.23 points, or 2.54 percent, to finish at 1,462.42. The Nasdaq Composite Index climbed 92.75 points, or 3.07 percent, to end at 3,112.26.

Market breadth reflected the strong rally, with 10 stocks rising for every one that fell on the New York Stock Exchange. All 10 of the S&P 500 industry sector indexes gained at least 1 percent. The S&P financial index shot up 2.9 percent.

On Tuesday, Congress passed a bill to prevent huge tax hikes and delay spending cuts that would have pushed the world's largest economy off a "fiscal cliff" and possibly into recession.

The vote avoided steep income-tax increases for a majority of Americans, but failed to resolve a major showdown over cutting the budget deficit, leaving investors and businesses with only limited clarity about the outlook for the economy. Spending cuts of $109 billion in military and domestic programs were temporarily delayed, and another fight over raising the U.S. debt limit also looms.

"We got through the fiscal cliff. The next big thing, and probably more contentious thing, is negotiating the debt ceiling and possibly entitlement reform in early 2013," said Jim Russell, senior equity strategist for U.S. Bank Wealth Management in Cincinnati.

Hard choices about budget cuts and the critical need to raise the debt ceiling will confront Congress about the same time in two months "so the fur will be flying," Russell said.

U.S. stocks ended 2012 with the S&P 500 up 13.4 percent for the year, as investors largely shrugged off worries about the fiscal cliff. For the year, the Dow gained 7.3 percent and the Nasdaq jumped 15.9 percent.

Bank shares rose following news that U.S. regulators are close to securing another multibillion-dollar settlement with the largest banks to resolve allegations that they unlawfully cut corners when foreclosing on delinquent borrowers. 

Economic data from the Institute for Supply Management showed U.S. manufacturing ended 2012 on an upswing despite fears about the fiscal cliff, but the Commerce Department reported that construction spending fell in November for the first time in eight months.

Volume was heavy, with about 7.8 billion shares traded on the New York Stock Exchange, the NYSE MKT and the Nasdaq, well above the 2012 daily average of 6.42 billion.

NYMEX - SINGAPORE, Jan 2 (Reuters) - U.S. crude futures edged down toward $91 on Wednesday as investors nervously await a last-minute deal from the United States to stave off rising taxes and spending cuts that could trigger a recession and erode its fuel demand.

CBOT Soybean - Soybean futures on the Chicago Board of Trade erased early gains

and closed down 1.2 percent, posting a one-month low on

technical selling, while soyoil soared, traders said.

·         CBOT soyoil jumped nearly 3 percent, its biggest daily rise since August, after lawmakers included an extension of the $1 a gallon tax credit for soy-based biodiesel as part of their massive fiscal pact.

·         CBOT March soymeal fell 3.3 percent, plunging below its 200-day moving average on the way to a one-month low, as traders unwound meal/oil spreads. 

·         Funds hold a large net short position in soyoil, leaving that market vulnerable to short-covering.

·         Crop weather in South America is mostly satisfactory, with pockets of dryness and pockets of extreme wetness leading to some concern about crop planting and growth - MDA EarthSat Weather.

·         CBOT reported nine soymeal deliveries against the January contract, along with 3,034 soyoil deliveries and no soybean deliveries.

FCPO - SINGAPORE, Jan 2 (Reuters) - Malaysian palm oil futures rose to a 2-month high on Wednesday as the United States averted a fiscal crisis and as traders look forward to better demand for the edible oil on a lower export tax structure.

Investors were relieved after U.S. lawmakers approved a deal preventing huge tax hikes and spending cuts that would have pushed the world's largest economy into recession and hurt global commodity demand.

Market players were also betting on Malaysia's zero export tax in January to spur demand and help clear record-high stocks.

"The zero export tax will be long-term positive. But the short-term impact may be neutralised by tighter edible oil import rules by China," said Alan Lim Seong Chun, research analyst with Malaysia's Kenanga Investment Bank.

Stricter quality measures set to be enforced by Beijing on Jan. 1 could hurt demand for palm oil.

At market close, the benchmark March contract on the Bursa Malaysia Derivatives Exchange gained 2.7 percent to 2,503 ringgit ($825) per tonne, off its intraday high at 2,524 ringgit, a level last seen since Nov. 2.

Total traded volumes stood at 33,431 lots of 25 tonnes each, higher than the usual 25,000 lots.

Traders are looking out for official data on Malaysia's palm oil December inventory level due next week, which is expected to ease slightly from November's record-high 2.56 million tonnes.

But they said the drop could be limited as Malaysian palm exports during December fell as much as 7.9 percent from a month ago, according to cargo surveyor data.

Brent crude oil hit a one-month high above $112 per barrel on Wednesday after the U.S. Congress approved a deal to avert a fiscal crisis, while promising data from top energy consumer China also supported prices.

Soybean oil markets in the U.S. and China were closed for the New Year holiday.

Regional Equities - BANGKOK, Jan 2 (Reuters) - Most Southeast Asian stock markets rose on Wednesday, with Singapore climbing to a 17-month high and Philippines closed at a new record high as a positive resolution to the U.S. 'fiscal cliff' led to a broad rally in commodities and market large caps.

Some analysts and central banks in the region said although the U.S. fiscal deal would help support near term market sentiment, they were still cautious of a long term resolution of the U.S. budget crunch.

"This (agreement) could spawn risk appetite in the short run, resulting in funds flow towards emerging economies," said Philippine Central Bank Governor Amando Tetangco.

"But the markets will soon look for a more lasting solution to the U.S. debt problem. In the interim, we could see higher volatility in the financial markets," the governor said.

Singapore's Straits Times Index finished up 1.1 percent at 3,201.74, the highest since August, 2011. Philippine Composite Index was up 0.8 percent at 5,860.99, topping its record finish of 5,832.83 set on Dec. 26.

Thai main SET index, Southeast Asia's best performer in 2012, gained 1.1 percent to 1407.45, the level last seen on February, 1996. Malaysia main index, the region's 2012 worst performer, bucked the trend to fall 0.8 percent.

The Malaysian bourse said local institutions sold shares worth 113 million ringgit ($36.95 million) countering buying by foreign and retail investors of 98 million ringgit ($32.05 million)and 15 million ringgit ($4.91 million), respectively.