Market running out of steam

CHICAGO: Money managers, who can turn the tide in a market midstream because of their deep pockets, seem to be souring on grains after helping corn prices rally to an all-time high two months ago, beckoned by other assets.

Historically high prices have begun to hurt demand for corn, with the US government slashing its demand estimate last week by 400 million bushels for this year's crop that is currently being harvested in the Midwest grain belt.

Chicago Board of Trade spot soybean futures have also been on the decline after peaking at $14.56 per bushel on Aug. 31, dropping $1.00, or nearly 7 percent, to $13.55-1/2. Prices have dipped below the key psychological level of $14.

The USDA's unexpected increase in the US soy crop yield in its supply-demand report last week has weighed on the market, in addition to the slow pace of exports.

Ample supplies of wheat across the globe have cut CBOT spot wheat futures from the recent high of $7.71-1/2 set on Aug. 29, to $6.88-1/4, down 83 cents, or nearly 11 percent.

CBOT corn and wheat futures declined for the third straight week, while soybeans were down for a second week.

Traders estimated that money managers were net sellers of 45,000 corn contracts last week, and were net sellers of 27,000 soybean contracts and 11,000 wheat contracts.

Corn futures have been on the wane even as the USDA slashed its US corn yield estimate by nearly 4 bushels per acre, which trimmed production by 417 million bushels, while reducing its estimate of demand 400 million bushels.

The department said in its report last week that the US livestock sector will reduce corn use by 200 million bushels, and cut demand from the ethanol and export sectors by 100 million bushels each in the marketing year that began Sept. 1.

All eyes will be on a two-day meeting of the Federal Reserve Bank starting on Tuesday for indications of whether the bank will launch another round of quantitative easing (QE) to buy up bonds to bolster weak US economic growth.

Any move by the Federal Reserve to shore up the economy and drive down the stubbornly high unemployment rate of 9.1 percent could have an impact on commodities markets, analysts said.

In its last round of bond buying that ended in June, the Federal Reserve bought $600 billion worth of debt, which helped to rally commodities markets due in part to fear of inflation.

A senior trader with a brokerage said there was talk that Fed Chairman Ben Bernanke may consider buying longer-term bonds instead of short-term bonds to hold down mortgage interest rates.

"There is talk that there could be a twist this time. Instead of buying short-term bonds, the Fed will buy longer-dated bonds so that mortgage rates will remain low."

Many analysts consider the housing market, which is rife with foreclosures, to be at the heart of the economic ills confronting the United States.

Copyright Reuters, 2011