December 1, 2010

CBOT corn drops due to European debt
 

CBOT corn futures decreased the most in a week amid rumours that the EU may have to bail out more members.

Thus, it is damping the global economy and demand for raw materials, including grain.

The MSCI World Index of equities dropped to the lowest level in eight weeks as the euro dropped against the dollar and costs to insure the debt of Italy, Spain, Portugal, and Ireland reached records. In November, corn slumped 6.5%, ending a five-month rally.

"The ongoing fears of the European-debt problems are reducing investments in grain markets," said an analyst. "World economic concerns are the overriding negative factor."

Corn futures for March delivery fell by US$0.0925 or 1.7%, to close at US$5.44 a bushel on CBOT. It is the biggest drop since November 19.

On November 9, the price reached a 26-month high of US$6.175 after the USDA said that unfavourable weather decreased the volume of the domestic crop. Futures have gained 31% this year.

Corn prices also fell on speculation that China will be slow to increase imports from the US, the analyst said.

China was a net importer in the year ended September 30 for the first time in 14 years, according to USDA data. China, the second-biggest producer, imported almost 1.3 million tonnes in the previous year.

China's imports would not show a fast increase due to adequate supplies from the domestic crop, another analyst said. The US is the leading exporter.

"The comments raised the possibility that China may not need to buy as much as traders expected," the first analyst said. "I still expect China to import at least five million tonnes in 2011 to keep domestic prices in check."