October 13, 2008


Economic woes, bearish crop data send CBOT grains tumbling


Grain and soy futures at the Chicago Board of Trade tumbled Friday (October 11), succumbing to speculative liquidation as global economic turmoil continues to send negative waves through the markets.


Grain and oilseed are being battered by liquidation of long positions on worries over economic deflation and fears that global credit woes will negatively impact US exports, said Terry Reilly, analyst with Citigroup in Chicago. Long positions are expectations prices will rise.


Investors are attempting to avoid risk in uncertain economic times by exiting positions in any market perceived as risky, analysts said.


CBOT November soy are down the exchange-imposed 70-cent daily trading limit at US$9.10 a bushel, the lowest level on continuation charts since September 2007.


Higher production and ending inventory forecasts from US Department of Agriculture, issued Friday morning, added bearish pressure to soy.


The USDA projected a 2.2 million acre increase in harvested area, which more than offset a reduction in yields, an analyst said. With less demand for the soy products, soy ending inventories rose 85 million bushels to 220 million.


"The data eases fears of the market running short of soy supplies in the 2008-09 marketing year," Reilly added.


Corn dropped by its 30-cent daily trading limit, erasing gains from a modest short-covering rally Wednesday and Thursday.


December corn is down 30 cents to US$4.08 1/4 per bushel. The market has fallen 28 percent since an intraday high of US$5.74 on Sept. 24, and has dropped by almost 50 percent since approaching US$8 in late June.


Concerns about weakening demand in the face of a worldwide recession were affirmed Friday by the government's supply and demand report, which projected reduced ethanol demand and slightly higher ending inventories.


The government also issued bearish crop numbers for corn Friday. The USDA increased its crop production estimate to 12.2 billion bushels with a yield of 154 bushels per acre, up from a September estimate of 12.072 billion bushels and yield of 152.3 bushels per acre.


Western Milling analyst Joel Karlin said he expects even more bearish government reports in the months to come. He expects the production outlook to continue to improve and demand to continue to weaken.


As in the corn and soy markets, fundamental factors for wheat, such as global supply and demand, were overshadowed by the financial crisis, an analyst said. The limit-down losses in CBOT corn and soy also weighed on wheat, traders said.


"At this point, the sky is falling and we're having a hard time getting up," said Jerry Gidel, analyst for North America Risk Management Services.


On a monthly continuation chart, CBOT December wheat hit the lowest price for a nearby contract since June 2007. Unlike the row crops, the market did not fall its daily, exchange-imposed limit of 60-cents, possibly because trend-following funds remain net short in CBOT wheat, an analyst said. Short positions are expectations prices will fall.


The USDA's supply/demand report included some bearish data to supplement the outside pressure on wheat, Gidel said. The agency raised its estimate for 2008-09 US wheat inventory to 601 million bushels, up 27 million from September, and its forecast for world production to a record 680.2 million tonnes, up 3.9 million from last month.

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