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U.S. grains tumble on European debt jitters

U.S. grains tumbled on Wednesday, and soybeans sank below US$16 a bushel to their lowest price in nearly three months as worries about Europe’s debt crisis had investors scrambling for safe-haven assets like U.S. Treasury bonds.

The declines were accentuated as hedge funds booked profits ahead of the end of the month and quarter. Corn was on track for a second straight monthly decline, and soybeans headed for their first drop in four months.

Corn futures fell 2.5 per cent to the lowest level in nearly three months. Like soybeans, corn was pressured by the harvest in the world’s top grains exporter moving at a record clip, boosting supplies in the pipeline.

Investors had focused for more than three months on tight supplies brought on by the worst U.S. drought in half a century, but now they are turning their attention to macroeconomic factors, including a stronger dollar, for price direction.

Analysts said investors were liquidating long positions in grains after prices hit record highs this summer. They said prices have been pressured by anecdotal accounts of better-than-expected soybean yields and dimming demand for corn.

"New-crop supplies are coming into the market and there was some balancing of books before end of the month and quarter," said Sterling Smith, futures specialist at Citigroup in Chicago.

Corn futures were also weighed by U.S. crude oil falling 1.5 per cent and ethanol production in the United States slumping three per cent last week to a two-month low.

China’s corn imports are expected to drop just over 60 per cent next year, according to a Reuters poll.

But the biggest market mover of the day was the debt crisis in Europe, which helped to strengthen the dollar and shift the attention away from fundamentals.

"Grains took the diverging path due to supply-side fundamentals in the third quarter, but the two roads are coming together now." said Mike Zuzolo, president of Global Commodity Analytics in Lafayette, Indiana.

"They are back to protesting in Europe and we are seeing risk-off trade," he added.

Investors worried about Europe’s debt crisis as tens of thousands in Greece took to the streets in the country’s biggest anti-austerity demonstration in months even as the European Central Bank began buying bonds to restore economic confidence.

Spain’s Prime Minister Mariano Rajoy said he was ready to seek a new rescue package if the country’s debt financing costs remained too high for too long.

The dollar index, a measure against major currencies, was at a two-week high, rising 0.38 per cent by 13:05 p.m. CT, raising the cost of U.S. grains overseas.

Chicago Board of Trade (CBOT) November soybeans fell 38-1/2 cents, or 2.4 per cent, to close at $15.73 a bushel (all figures US$). CBOT December corn was down 19 cents, or 2.6 per cent, at $7.24-3/4 a bushel while December wheat fell 17-1/4 cents, or two per cent, to $8.69-1/4.

Egypt buys wheat

Traders were gearing up for Friday’s U.S. quarterly grain stocks and wheat crop reports, which may provide new direction for markets.

"Everyone is pretty hesitant to make any moves ahead of the USDA grains stocks report on Friday," Rabobank analyst Erin FitzPatrick said. "The very fast progress being made with the U.S. corn harvest does raise questions about how this will impact the stocks report."

Analysts polled by Reuters expect U.S. corn and soybean stocks as of Sept. 1 to be the lowest in eight years at the end of the 2011-12 season.

Egypt’s state grains buyer General Authority for Supply Commodities (GASC) bought 300,000 tonnes of Romanian and French wheat at its snap tender. There were no purchases of wheat from Russia, which has been a major supplier to GASC the past month.

The absence of Russian wheat sales could reinforce speculation that one of the world’s top wheat exporters was running out of supplies for export after a drought slashed its harvest this year.

There have been persistent rumours that Russia could limit exports, but with its prices rising steadily over the past month, its supplies could have become less competitive.

"Russians are pretty much done as far as being an exporter," said Dan Basse, president of AgResource Co. in Chicago, adding that Russian wheat prices were the highest in 20 years.

He said demand from North African countries could now come to other suppliers like Canada, the United States and Australia, where dry weather is raising concerns over crop prospects.

European benchmark November wheat in Paris ended 0.1 percent higher at 261.50 euros a tonne on export prospects.

— K.T. Arasu reports for Reuters from Chicago. Additional reporting for Reuters by Michael Hogan in Hamburg and Colin Packham in Sydney.

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