October 2, 2010
Fear of high corn stockpiles and uncertainties in the outlook for sugar and cotton sparked a massive sell-off in agricultural markets on Friday, overshadowing the rally in energy and metals.
US corn futures tumbled the 30-cent trading limit in near record volume to end down 6 per cent for the session and 10 per cent for the week in an extended reaction to Thursday’s government crop report showing hefty inventories of the grain.
Soybeans fell 4 per cent on the day and wheat over 3 per cent.
Raw sugar closed down half a per cent, adding to the previous session’s drop of almost 6 per cent. Analysts said investors were worried the sweetener’s near 50 per cent gain during the third quarter had outpaced demand.
The liquidation marked a sharp reversal in trend for agricultural markets, which were among the biggest gainers in commodities during the just-ended quarter.
“I’m sure that the market had outstripped its fundamentals,” Keith Brown, a cotton broker in Moultrie, Georgia, said after US cotton futures plunged about 4 per cent from 15-year highs. “(Speculators) carried us up … now, they are feeding upon themselves like piranha trying to get out faster than the next guy.”
The 19-commodity Reuters-Jefferies CRB index settled down almost half per cent after rising as much earlier in the session, following a 2 per cent rally in oil and copper and a new record high in gold. The CRB rose nearly 11 per cent in the third quarter, its biggest gain in five quarters, with sugar being the index’s star performer.
The about-face in agriculture after the strong third quarter made some grains traders wonder if they were looking at the start of a prolonged lean period for prices. But some, like those in the sugar trade, expected a quick rebound.
“With oil so strong and the dollar weakening further, it would seem sugar will hold rather than continue the collapse, and we would expect the support to hold,” said Thomas Kujawa of Sucden Financial Sugar, who predicted the sweetener would hold at above 22.50 cents a lb. New York’s key raw sugar contract closed at 23.36 cents per lb.
Corn posted its biggest one-day drop since January 12, when the government released another bearish report on stockpiles of the grain. Chicago’s key corn contract for December finished at $US4.65-3/4 a bushel, falling the 30 cent that also contributed to its biggest weekly loss since mid-January.
Crude oil’s benchmark front-month contract in New York rose almost 2 per cent to settle above $US81 a barrel, a level not seen since August 10, as a sliding dollar caused investors to hedge in oil and metals.
Gold hit record highs for a sixth successive session, scaling above $US1320 per ounce.
Copper rose 2 per cent to scale two-year highs in both London and New York after China’s latest manufacturing data showed an important engine of global growth was humming again after sputtering in the second quarter.