Views on commodities and energy
Grain markets to remain clouded by Wall Street crisis
Political and financial leaders were working over the weekend around the world to find ways to calm the growing fears on Main Street and Wall Street as the burgeoning world credit crunch resists solutions. That cloud of doubts of necessity will hang over all financial markets, including grains and other commodities, in the coming week.
In Washington, President Bush met with G7 economic chiefs and officials from the IMF and World Bank. In Paris, European leaders hoped to agree on detailed plan on Sunday to prevent the spread of further panic. In Britain, banks were in crisis talks with the government and regulators which could see the government take multi-billion-pound stakes in several lenders. Australia and New Zealand announced they would guarantee bank deposits.
The deepening credit crunch has spawned fears feeding fears and wiped out trillions of dollars of paper wealth in stock and bond markets in recent weeks, creating a climate of worry that has dried up credit for many traders too. The Dow industrials fell for the eighth day in a row on Friday in its worst week ever, dropping below the 8,000 mark for the first time in 5-1/2 years.
The panic spilled over to commodities as the Reuters-Jeffferies CRB commodity index <.CRB> posted its sharpest weekly loss ever as selling in crude oil and other raw materials intensified. Plummeting grain prices added to the weight.
But in Chicago corn and soybean futures also got a double dose of bearish fundamental news on Friday. The U.S. Agriculture Department lowered its price forecast for grains in part because of the financial turmoil worldwide, which will weigh on exports and food purchasing power overseas. USDA also bumped up its estimates of the size of the 2008 American corn and soybean outputs.
USDA forecast a farm-gate price of $4.70 a bushel for the 2008 corn crop, down 80 cents from its forecast one month ago. Soybeans were forecast to average $10.35 a bushel, down $2, and wheat to average $7, down 25 cents.
Nearby Chicago Board of Trade corn futures closed just above $4 while soybeans finished around $9 after both markets dove by their respective trading limits (30 cents in corn and 70 cents in soy). Both are now near 12-month lows, as spot corn futures have been trading above $4 since December 2007 and spot soybeans have held above $9 for the past year.
Expanded limits go into effect beginning Sunday night for the start of trading in Asia: 45 cents in corn and $1.05 in soybeans.
All the bad news comes just as American farmers rev up for harvest across the heartland. Autumn weather has been ideal for harvesting. Warm days, little rain — giving late-planted crops time to ripen and reach their maximum yield potential, a factor USDA no doubt worked into its upward revisions for corn yields and production in last week’s monthly supply-demand update.
The coming week will offer plenty of volatility as the world tries to catch its breath in the worst financial crisis since the Great Depression.
PHOTO: Freshly harvested soybeans being unloaded in central Iowa farm field near Ames. USDA to release its next crop progress report Monday afternoon. Taken by Chris Stebbins.