October 13, 2008

Fears of a looming global depression had US farmers facing the prospect of even greater declines in the value of their stored grain Friday (October 10), even though cash prices already stood within sight of 10-18 month lows as of the close of business Thursday.

Although the US Department of Agriculture also released a bearish early morning crop report that relayed news of larger fall crops, virtually across the board, much of the ominous market outlook actually stemmed from a continuing collapse in world financial markets.

"In the last seven days, we've seen the December S&P 500 futures move 22% lower," said Risk Management Commodities Inc. "Wealth destruction will begin to cause demand destruction for commodities if credit/money markets don't thaw within the next two weeks. This scenario would suggest that new lows in equities will cause new lows in commodities."

The firm warned that futures, which comprise the largest component of the cash-price equation for grain, could drop another 65-70 cents per bushel for corn.

"For November [Chicago Board of Trade] beans, a break below this week's low of US$9.11 could open the downside up to its 200-week moving average of US$8.25," Risk Management Commodities said.

National cash grain prices currently average US$8.93 1/2 for soy, US$3.96 1/2 for corn, US$5.54 1/4 for hard red winter wheat, US$3.84 1/2 for soft red winter wheat and US$6.38 for hard red spring wheat. Those values represent declines of as much as 75 percent from all-time record highs reached earlier this year.

"Historically, a lower commodity value elevates grain demand by foreign countries. This is especially the case when freight values are low such as they presently are," said Iowa commodity trade advisor Karl Setzer. "Demand may not increase as much this time though, as concerns over the state of the global economy is keeping buyers on the sidelines for now. A legitimate concern is that foreign countries will not be able to afford grain, even at its current price level."