US grain prices may slip further on federal bank plan

 

 

Grain prices are looking bearish in the wake of President Barack Obama's plans to limit banks' financial risk-taking that could hurt commodities demand.

 

While it is only a proposal, sellings have occurred because of it, said grain analyst Vic Lespinasse.

 

CBOT corn futures prices have already dropped 14% or nearly 60 cents per bushel over the past two weeks. Wheat is down 12-1/2% and soy off 6%.

 

They are likely to fall further as the market becomes coyer about potential government involvement and on signs of rising global grain and oilseed supplies.

 

There could be a short-term recovery this week, but long-term is bearish with a huge South American soy crop coming on and increased US acres for both corn and soy, said Joe Bedore, CBOT trading floor manager for trade house FC Stone.

 

If the plan becomes law, banks would break up but individual parts would still trade, so it is not all that bearish, said Bedore.

 

Buying of commodities by large banks has been blamed for driving crude oil and grains to record high prices in 2008. Grain prices were already on the decline before President Obama dished out the plan.

 

The market was still shaken by the USDA's January crop report released nearly two weeks ago, which said last year's corn and soy crops were larger than expected and are at a record high.

 

The report also showed a supply buildup in America this year for each crop, with wheat supplies the largest in 20 years and projected record South American soy production for 2010.

 

As the short-term supply/demand outlook turned bearish, the long-term outlook also starts to look murky as US farmers turn away from crops such as wheat to plant corn and soy.

 

Memphis-based analysts Informa Economics forecast 2010 US corn production at 89.6 million, up more than three million acres from last year, and soy acreage at 77.9 million, nearly a million higher from 2009.

 

Lespinasse said the US has lost about 20 million acres of winter wheat in the past 20 years to corn and soy.

 

USDA's winter wheat seedings report showed a reduction in US wheat seedings to the lowest area in 97 years.