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Grains tumble on demand concerns

11/16/2010 @ 2:06pm

U.S. soybean and grain futures fell sharply Tuesday as concerns grew over the strength of Chinese demand and overall sustainability of a recent price rally.

Soybeans and corn futures hit exchange-imposed limits set for one-day declines in morning trading at the Chicago Board of Trade.

Soybeans for January delivery, the most active futures contract, recently traded down 66 1/4 cents, or 5.1%, to $12.19 3/4 a bushel, nearly meeting the daily trading limit of 70 cents. Corn for December delivery traded 26 cents, or 4.7%, lower to $5.29 1/2 a bushel after hitting the exchange-imposed low of 30 cents.

Driving the sell-off were fears China will raise interest rates and place tighter controls on consumer prices and agriculture commodities to control inflation. A report Tuesday in the China Securities Journal, citing unnamed sources, stated the government may unveil a set of controls, including consumer price increases and punitive policies aimed at speculation on agricultural products. The report comes amid mounting concerns the country will hike interest rates.

Chinese Premier Wen Jiabao said Tuesday after the country's markets closed that "market supply and consumer prices are related to the interests of the people and merit close attention." Food costs are at the heart of China's inflation worries, with the likelihood of price controls building as global agriculture commodities rallied this year.
Traders say a raising of interest rates would dilute the strength of Chinese demand for a range of commodities. At the same time, price controls could reduce the amount Chinese companies are willing to pay for grains and soybeans.

China is the world's largest importer of soybeans and accounts for 61% of total U.S. soy export sales through the first nine weeks of the 2010-11 marketing year. China buying has been at the forefront of soybean and soyoil price rallies of the past two months, propelling the commodities to 26- and 27-month highs, respectively, said Bill Nelson, analyst with Doane Advisory Service in St. Louis.

Soyoil futures traded 2.5 cents, or 4.8%, lower to their exchange-imposed daily price limit at 49.97 cents a pound Tuesday.

Corn and wheat futures suffered sharp declines as well. Traders said fueling the sell-off is the lack of confirmation Argentina reached a deal this week with China to export corn. Speculation of the deal had been a factor in Monday's price rally. Wheat futures have recently been following corn, since both are used as animal feed. December CBOT wheat recently traded 42 cents, or 5.9%, lower to $6.70 1/2 a bushel.

The slide in prices was exacerbated Tuesday by increased selling from investors who were concerned a recent rally in agriculture commodities has reached its peak, said Jerry Gidel, analyst with North America Risk Management Services.

"The players in the market are shaky," he said.

-By Andrew Johnson Jr., Dow Jones Newswires; 312-347-4604; andrew.johnsonjr@dowjones.com
(Jerry A. DiColo contributed to this article.)
(END) Dow Jones Newswires
November 16, 2010 13:46 ET (18:46 GMT)
Copyright (c) 2010 Dow Jones Company, Inc.

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