US corn at 5-week low, wheat falls on risk aversion

SINGAPORE: US corn slid 0.7 percent on Monday to its lowest in 5 weeks, while wheat fell for a third straight session, as the euro zone debt crisis triggered a selloff in commodity markets including oil and metals.

There was additional pressure on the corn market with expectations of demand destruction, while wheat suffered under the weight of plentiful global supplies.

A weekend of disappointing news from the euro zone prompted market players to cut risk and move into gold and US Treasuries.

Asian stocks fell and the euro dropped 1 percent ahead of a meeting of the Federal Reserve which will be watched for clues on whether there will be fresh stimulus for the sputtering US economy.

"Grains have moved lower following a pretty significant move lower in the crude oil market and a sharp rally in the dollar index. Quite clearly the risk is coming off the table and grains are getting caught in that," said Luke Mathews, a commodity strategist at Commonwealth Bank of Australia.

"The grain market over the past week has very much been worried about demand destruction in (US) corn and wheat as values in those markets are expensive relative to other origins."

Chicago Board of Trade benchmark December corn fell to $6.87-1/4 a bushel at 0336 GMT, after falling as lows as $6.86-1/2 a bushel, the weakest since Aug. 11.

December wheat fell 0.5 percent to $6.84-1/2 a bushel and November soy also lost around half a percent to $13.49-1/4 a bushel.

The dollar index , which measures the strength of the greenback against a basket of currencies, rose 0.8 percent, making dollar priced US commodities expensive for overseas buyers.

The slump in grains has been triggered by a bearish US Agriculture Department crop report last week that forecast a sharp decline in US corn demand that mostly offset an expected drop in production this summer.

Signs of lighter-than-expected crop damage from a freeze last week in northern sections of the US corn belt added to bearish sentiment.

Temperatures were below freezing in the western US corn belt, but the weather was forecast to warm up in the next few days.

The market noted news that the Chinese government will sell an unspecific volume of corn from state reserves to cool record physical prices.

A squeeze in domestic supplies and a decline in international prices may prompt the authorities to buy more from the United States, as has happened in the past.

The nation may have bought as much as 5 million tonnes of corn since March this year as it replenishes depleted reserves. China bought 1.57 million tonnes in 2010, the most in 15 years, and almost all of it came from the United States.

Above-average rainfall is more likely in north Australia in the last quarter of 2011, but the chances of a drier or wetter October to December period are roughly equal across much of the grain belts, the country's bureau of meteorology said on Monday.

The chances of receiving above average rainfall in the quarter are between 60 and 75 percent over the Northern Territories, the northern half of Queensland and western and northern parts of Western Australia, the bureau said in its latest seasonal outlook.

Copyright Reuters, 2011