September 6, 2008


CBOT Soy Review on Friday: Economic jitters spur broad-based sell-off



Chicago Board of Trade soybean futures fell sharply Friday, as global economic jitters ignited broad-based selling in commodities.


September soybeans settled 54 cents lower at US$11.80 and November soybeans ended 58 cents lower at US$11.77.


December soymeal settled US$15 lower at US$327 per short tonne. December soyoil finished 135 points lower at 48.89 cents per pound.


A variety of factors extended the market's selling spree, with a hike in the U.S. dollar, a big jump in U.S. unemployment numbers and continued declines in crude-oil futures leading the flight from commodities, said Bill Nelson, grains analyst with Wachovia Securities.


A higher U.S. dollar is bearish for commodities as most raw materials are dollar-denominated, making it more expensive for foreign buyers to import.


The potential risk of a macroeconomic slowdown and economists talking of possible negative gross-domestic-product data later in the year have investors trimming risky positions, Nelson said.


For the past two years, money has flowed into commodities such as grains and energy via index funds. Once these large investors began pulling money out, it is very difficult for market fundamentals to overcome the measurable negative impact of money flowing out, Nelson added.


Index funds buy commodities as a basket, so when one commodity market falls, it can trigger breaks in other markets.


Beneficial rains moving through the central Midwest had a negative impact on prices as well, with bearish private production forecasts and technical pressure providing an additional catalyst to pull prices to 4-month lows.


However, end-user buying provided light support to make the price slide orderly. But with no fundamental contribution to derail the bearish train, downside momentum remains in full swing.


Looking ahead, investors will need to see a broad-based bounce in commodity markets to provide hope that a bottom is near, particularly in crude oil, analysts said. Crude oil settled down US$1.66 a barrel to US$106.23.


The DTN Meteorlogix forecast said temperatures in the U.S. Corn Belt aren't favorable for crop progress over the next five days -- especially in the western Midwest. Daytime highs will be 10 degrees Fahrenheit below normal in Iowa and about 12 degrees below normal in Nebraska. This chilly pattern has crops vulnerable to frost damage even if the first frost arrives at a normal time frame, Meteorlogix said.


In pit trades, speculative fund selling was estimated at 6,000 contracts.





Soy-product futures succumbed to the same speculative selling pressures as soybeans, with bearish economic outlooks enticing investors to trim length in the market, analysts said. Soyoil futures tumbled to their lowest levels since December 2007, with the liquidation of weak longs and ample stocks providing little support to the downward trend, analysts added.


Soymeal futures were swept up in the speculative sell-off as well, unable to get its footing, despite larger than expected export sales.


December oil share ended at 42.78% and the November/December crush ended at 80 1/4 cents.


Speculative fund selling was estimated at 3,000 lots in soyoil, and 2,000 lots in soymeal.


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