Biggest quarterly loss since 2008, grains, oil slide

NEW YORK: Commodities posted the largest quarterly loss since the 2008 financial crisis, and ended June on the defensive after a plunge in grain prices on Thursday.

The 19-commodity Reuters-Jefferies CRB index, a global benchmark, finished the second quarter 6 percent down. It was its biggest decline since the fourth quarter of 2008, after the collapse of Lehman Brothers triggered a global financial market meltdown.

The outlook for commodities through 2011 was uncertain, analysts said. They said investors were anxious about whether the US Federal Reserve would prolong a stimulus program that injected money into the commodity markets over the last nine months.

The Fed has said the $600 billion bond-buying program, known in market lingo as Quantitative Easing 2, or QE2, would not be extended beyond June 30.

"It's a bit like automakers who offer incentives to buy. People get hooked on them, and before one program ends, they're thinking about when the next one will come along," said Gregory Whiteley, portfolio manager at DoubleLine Capital, a Los Angeles-based fund with some $12 billion in assets.

Stock and bonds outperformed commodities during the second quarter. The S&P 500 index for US stocks fell about half a percent, compared with the CRB. The Barclays Capital Aggregate index for US investment grade bonds did better, rising 2.4 percent.

Some said the price outlook for oil and agriculture was especially shaky as supply shocks from earlier in the year faded.

The economic malaise, highlighted by unemployment in the United States, sovereign debt crises in the eurozone and China's curtailing of growth to fight inflation, only worsened fears.

"We're seeing continued volatility in prices, and I think that reflects the fact that there are some patches of global growth that are very weak and that's likely to be a pervasive influence for some time," said Ben Westmore, commodity economist at National Australia Bank.

"We've come to a point where, in real terms anyway, commodity prices have rebounded to around their pre-crisis levels, so you would really need to see further resurgence in demand growth to get significant growth in prices."

Corn futures finished down 10 percent for Thursday's session and the quarter, hitting a 3-1/2 month low below $6.20 a bushel.

A US government report said farmers were able to seed far more corn acres this spring than many analysts expected and that supplies are not as tight as many thought.

Wheat futures plunged too, fell 9 percent on Thursday to below $5.85 per bushel, its lowest since July 2010.

Wheat was also the biggest loser among commodities for the second quarter, falling 23 percent. Together with soybeans, wheat and corn command 18 percent of the CRB's weighting, the largest after crude oil.

US crude, which accounts for a quarter of the CRB's weighting, finished at just above $95 per barrel, up slightly on the day, but down 11 percent for the quarter. Like the CRB, it was the worst quarter for US crude since 2008.

London's Brent crude also rose marginally on the day to finish above $112 per barrel. But for the quarter, it fell 5 percent -- its biggest decline since the second quarter of 2010.

Crude prices rose nearly 25 percent in the first quarter due to unrest in Egypt, Libya and other North African and Middle East oil-producing countries. Reduced focus on the region since and the dollar's sharp rebound last month had unwound some of the gains.

In Thursday's session, oil was weighed down by concerns over escalating violence in Greece after the government in Athens passed in parliament on Wednesday severe austerity measures tied to its bailout by international lenders.

Worries that an emergency crude stockpile release announced by the International Energy Agency last week would tip the market's balance also hurt oil prices.

Copyright Reuters, 2011