Soybeans, Corn Fall as Demand May Drop During Global Recession

March 2 (Bloomberg) -- Soybeans plunged to an 11-week low and corn fell for a third session on speculation that demand will decline because of the global economic slump.

The MSCI World Index of equities dropped to the lowest in almost six years, Warren Buffett said the economy is in a “shambles,” and American International Group Inc. announced a $61.7 billion loss in the fourth quarter. Corn and soybeans are down 14 percent this year as consumption waned for food, livestock feed and fuel made from the crops.

“It’s all about the outside markets, with the stock market down again,” Charlie Sernatinger, a market analyst at Fortis Clearing Americas LLC in Chicago said in an e-mail. “There is no way anyone is going to pick a bottom in grains without a bottom in the outside markets.”

Soybean futures for May delivery fell 28 cents, or 3.2 percent, to $8.44 a bushel on the Chicago Board of Trade, after earlier dropping to $8.3825, the lowest for a most-active contract since Dec. 12. The price climbed 1 percent last week, ending a two-week decline. Soybeans touched a record $16.3675 on July 3, before ending the year down 19 percent.

Corn futures for May delivery fell 8.75 cents, or 2.4 percent, to $3.5025 a bushel in Chicago, capping a three-day drop of 5.9 percent. Most-active futures reached a record $7.9925 on June 27, before closing the year down 11 percent.

Dow Below 7,000

The Dow Jones Industrial Average dropped below 7,000 for the first time since 1997. The Reuters/Jefferies CRB Index of 19 raw materials fell more than 5 percent.

The U.S. economy contracted at a 6.2 percent annual rate in the fourth quarter, the steepest decline since 1982, according to Commerce Department data. Pilgrim’s Pride Corp., the biggest U.S. chicken processor, last week said it will idle three U.S. plants because of a glut of poultry meat. Pacific Ethanol Inc. announced plans to close distilleries in Idaho and California because of unfavorable market conditions for the corn-based fuel.

“It’s a global financial meltdown, and that has repercussions in the ag markets,” said Gregg Hunt, a market analyst for Fox Investments in Chicago. “There are no quick fixes.”

Speculators and investors may cut their net-long positions, or bets prices will rise, in both soybean and corn markets as equities continue to fall, said Gordon Linn, president of the Linn Group in Chicago.

Speculators cut net-long positions in soybean futures and options by 31 percent to 19,553 contacts in the week ended Feb. 24, the smallest in four months, CFTC data show. Net-longs have fallen 87 percent from a record position of 156,188 contracts in December 2007.

Index funds that invest in baskets of commodities cut net- long soybean positions by 1.9 percent to 96,188 contracts last week, CFTC data show. That’s a 52 percent reduction from 198,707 held in February 2008, the data show.

Corn Holdings

In corn futures and options, index funds increased net-long positions by 2.2 percent to 229,522 contracts last week, CFTC data show. Net-long positions are down 49 percent from a record 452,568 contracts in April.

Hedge-fund managers and other large speculators reduced their net-short positions in corn futures and options by 12 percent to 11,521 contracts in the week ended Feb. 24, CFTC data show. That’s up from a 37-month high of 13,117 contracts short a week earlier.

“You are witnessing a dramatic ratcheting back of risk and we will likely see more selling by funds” facing redemptions, Linn said. “We don’t see any signs of a bottom yet, but you don’t want to go shorting these markets now.”

Corn is the biggest U.S. crop, valued at $47.4 billion in 2008, followed by soybeans at $27.4 billion, government figures show. The U.S. is the world’s biggest grower and exporter of the crops.