Commodities Soar as Crop Forecasts Cut, U.S. May Buy More Debt

(Bloomberg) -- Commodity prices surged to the highest level in almost two years after the U.S. government cut its crop-supply forecasts and the dollar slumped on speculation the Federal Reserve will buy more debt to revive the economy.

 

The Reuters/Jefferies CRB Index of 19 raw materials jumped as much as 2.7 percent to 295.17, the highest level since Oct. 15, 2008. Every price advanced. Wheat, soybeans and corn led the gains, each jumping the most allowed by the Chicago Board of Trade. Copper climbed to a 27-month high, and crude oil topped $83 a barrel.

Since the end of May, the CRB index has rallied 16 percent, and the dollar slid 11 percent against a basket of six major currencies, as the U.S. sought to inject more cash into the economy and spur growth. Today, the greenback dropped below 82 yen for the first time in 15 years as a U.S. payrolls report showed employers cut more jobs last month than economists forecast.

“Everybody is printing more money except emerging markets, and those guys are buying commodities,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “We’re going to have an inflationary spike. This is a perfect storm for commodities going higher.”

The CRB index rose 7.81 to close at 295.11 at 5:10 p.m. New York time. This week, the gauge gained 3.3 percent, the most since April 2.

Crop Forecasts Cut

The U.S. Department of Agriculture today cut its domestic corn-crop estimate for the second time in as many months, predicting a 3.4 percent drop from last year. While farmers will collect the most soybeans ever, the total will be 2.2 percent less than forecast in September, the agency said. Global wheat inventories will be 1.8 percent less than projected last month.

“The government has shocked the grain industry with the huge cut in U.S. production,” said David Smoldt, the vice president of operations for FCStone LLC in West Des Moines. “There will be some scrambling for supplies today.”

Corn futures for December delivery rose the 30 cents, or 6 percent, to close $5.2825 a bushel. Soybean futures for November delivery soared 70 cents, or 6.6 percent, to $11.35 a bushel. Wheat futures for December delivery jumped 60 cents, or 9.1 percent, to $7.1925 a bushel.

Reduced supplies of corn may increase costs for meat companies and squeeze margins for makers of grain-based ethanol such as Valero Energy Corp., Poet LLC and Archer Daniels Midland Co.

The shares of Tyson Foods Inc., the largest chicken processor, slid $1.26, or 7.7 percent, to $15.01 in New York Stock Exchange composite trading. Earlier, they touched $14.82, an eight-month low. Smithfield Foods Inc., the biggest pork producer, fell $1.08, or 6.7 percent, to $14.97, the biggest drop in a year.

Freeport Climbs

Copper futures for December delivery increased 9.5 cents, or 2.6 percent, to close at $3.7745 a pound. Earlier, the price reached $3.8015, the highest level for a most-active contract since July 8, 2008.

Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly listed copper producer, climbed $4.11, or 4.5 percent, to $95.51. Earlier, the shares reached $95.91, the highest level since Aug. 1, 2008.

Crude-oil futures for November delivery rose 99 cents, or 1.2 percent, to $82.66 a barrel on the New York Mercantile Exchange. Earlier, the price reached $83.13.

Sugar rose to the highest price in almost eight months on concern that demand will outstrip supplies after adverse weather damaged crops in Brazil, the biggest producer.

Cotton futures jumped to a 15-year high after the USDA boosted a forecast for global demand. Textile mills will use 120.8 million bales in the year that began Aug. 1, up 0.2 percent from last month’s estimate, the USDA said.

--With assistance from Jeff Wilson, Whitney McFerron and Leslie Patton in Chicago: Patrick McKiernan, Steve Stroth

To contact the reporter on the story: Yi Tian in New York at Ytian8@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.

New York sugar may to hover around 23.20 cents per lb

SINGAPORE, Oct 4 (Reuters) - New York sugar may to hover around 23.20 cents per lb, as its sharp correction is expected to complete around that level going by its wave pattern.

The fall from 27.17 cents is labeled as a wave (4) retracement, likely to bottom around the wave "4" trough at 23.52 cents, close to 23.20 cents -- the 50 percent Fibonacci retracement level on the rise from 19.23 cents to 27.17 cents.

A further slip would be limited to 22.26 cents, the 61.8 percent level. Resistance is at 23.82 cents, a rise above which will open the way towards 24.85 cents.

CBOT soybean November futures contract could fall further

 

   

SINGAPORE, Oct. 4 (Reuters) - The CBOT soybean November futures contract could fall further, to $10.25 per bushel, which could slow the drop and trigger a sharp rebound.

Three horizontal support line drawn through the lows at 10.22-3/4, $10.25 and $10.33 together form a strong support zone to hold up the fall.

The decline on Friday could be too steep not to be followed by a rebound, which is unlikely before soybean reaches the support zone.

Resistance is at $10.50, a rise above which would extend the gain to $10.65, a resistance derived from an ascending trendline.

Malaysian palm oil is expected to retrace to between 2,600 ringgit and 2,588 ringgit per tonne

SINGAPORE, Oct 4 (Reuters) - Malaysian palm oil is expected to retrace to between 2,600 ringgit and 2,588 ringgit per tonne, as it failed to break past a long-term trendline resistance at 2,733 ringgit.

An identical channel, duplicated from the upper channel is pointing to 2,600 ringgit - a support provided by the lower channel line. Palm oil opened with a big gap on Monday, confirming the development of the retracement.

The lower end of the range is the 61.8 percent Fibonacci retracement level on the rise from 2,486 ringgit to 2,754 ringgit. 

A pullback towards the middle channel line is likely to be capped at 2,700 ringgit.

Grain Prices Fall From Their Heights

CHICAGO—Grain prices have plummeted as worries about shrinking food supplies have dissipated, due to better weather and an unexpectedly large increase in U.S. corn inventories.




Corn came under the most pressure last week, as futures for December delivery on Friday fell by the maximum allowed by the exchange, 30 cents, or 6.1%, to $4.6575. This brought the week's losses to almost 11%. Wheat plunged 9% for the week, and soybeans slipped about 6%.

The catalyst was fresh U.S. data showing corn stockpiles at 1.7 billion bushels as of Sept. 1, significantly more than analysts' expectations and even the U.S. Department of Agriculture's own previous forecast.

The report was a splash of cold water on a market that many said had become overheated as it climbed to its highest levels in nearly two years. Corn's gains have been driven, in part, by disappointing yields in some areas and the prospect that a weak crop would make supplies dangerously tight. Speculative investors, taking note of corn's strong recent returns and bullish fundamentals, poured money into the market on the rally but are now looking to exit.

"We had the whole third quarter just crank out great returns," said Mike Zuzolo, president of Global Commodity Analytics & Consulting, a brokerage firm. "It would strike me as absolutely normal and prudent, in fact, to go ahead and take some profit away from the markets."

The report damps speculation, at least for now, that corn supplies by September 2011 could shrink below the psychologically significant threshold of one billion bushels. It also undercut arguments that prices would have to rally to $5.50 or even $6 to chase buyers away and stave off a supply crisis.

Adding to the pressure is the continuing harvest, which typically weighs on prices during the fall as farmers send more supplies into the pipeline. Ultimate consumers of corn, such as food processors and livestock producers, bought into the dips in the corn market in recent weeks and are content to wait and see how far prices retreat, traders say.


Wheat demand also has slowed recently as fears about tightening global supplies have eased. Wheat prices are down 22% from nearly two-year highs reached when Russia, a major producer, spooked buyers by announcing in early August that it was halting grain exports due to a historic drought.

"In corn and wheat, we have seen some setback in demand," Mr. Zuzolo said. "We have seen some rationing."

Recent rain in Russia has encouraged farmers there to plant wheat that will be harvested in the spring, calming nerves of wheat importers. Buyers have higher hopes for Russia's next crop than they did a month ago, when the Black Sea region was hurting badly from the drought.

The USDA will give market participants an update on the global grain supply and demand situation on Friday. Grain traders expect they have already seen the worst in terms of downgrades to world wheat output but could still see a decline in the USDA's domestic corn-output estimate.

The corn crop has suffered because of excessive wetness early in the summer and hot, dry weather in August. Some analysts think U.S. yields could be down as much as 5% from last year. If that happens, supplies could still be uncomfortably tight in 2011.

"Do I still believe the long-term story is there?" said Arlan Suderman, an analyst for Farm Futures, an agricultural trade publication. "Yes. But I think it's going to take a while to regain traction."

Write to Ian Berry at ian.berry@dowjones.com and Tom Polansek at tom.polansek@dowjones.com

Commodity News Snapshot-Pakistan

THE RUPEE: all-round slide

KARACHI (September 28, 2010): All-round slide was seen on the currency market on Monday due to strong demand for the greenback, dealers said. The rupee extended the overnight fall, losing five paisa more versus dollar for buying at 86.02 and shed seven paisa for selling at 86.08, they said. In the first Asian trade dollar edged up from five-month lows as euro ran into profit-taking, and it dug in against yen as intervention jitters lent support.

 
Floods destroy cotton worth Rs 74 billion in South Punjab

MULTAN (September 28, 2010): Thousands of farmers of south Punjab would be forced to come on roads and protest against government because floods had played havoc in 450 villages of Muzaffargarh and Rajanpur district and their 2 million bales of cotton worth Rs 74 billion has destroyed.

KCA raises spot rate to Rs 7,150 in stable trend on cotton market

KARACHI (September 28, 2010): Firmness prevailed on the local cotton market on Monday as prices recovered due to short supply and high demand, dealers said. The Karachi Cotton Association (KCA) official spot rate was raised by Rs 300 to Rs 7150, they said. In the ready business, nearly 10,000 bales of cotton changed hands between Rs 7100-7300, they said.

Ban on gur export to Afghanistan sought: government asked to import 0.5 million tons of raw sugar for mills

KARACHI (September 28, 2010): The Pakistan Sugar Mills Association (PSMA) has asked the government to import 500,000 tons of raw sugar and impose complete ban on export of gur (raw sugar) to overcome likely sugar crisis in the country. In a letter, exclusively available to Business Recorder, PSMA Chairman Iskander M Khan has requested the Planning Commission to allow import of 500,000 tons of raw sugar and impose a ban on export of gur for avoiding another crisis.

Generating funds to open LCs: TCP directed to auction 50,000 tons of sugar in open market

ISLAMABAD (September 28, 2010): The Trading Corporation of Pakistan (TCP) has been directed by the federal government to auction 50,000 tons of imported sugar in the open market to generate funds for opening of letters of credit (LCs) for the remaining contracted quantity of sugar, sources close to Secretary, Industries, told Business Recorder here on Monday.

 

Need to maintain wheat production, reserves emphasised

LAHORE (September 28, 2010): Besides achieving self-sufficiency in wheat production, Pakistan should also maintain its reserves to tackle food problems during natural calamities. This was stated by Dr Noor-ul-Islam, Director General Agriculture (Research), AARI while addressing a meeting of agricultural scientists, held to finalise Annual Research Programme of Wheat 2010-2011.

 

Bullion Rates

KARACHI (September 28, 2010): Gold and silver rates in rupees per 10 grams prevailing in major cities on Monday (September 27, 2010).

 

International News

Malaysian palm oil at 15-month high

KUALA LUMPUR (September 28, 2010): Malaysian palm oil hit a 15-month high and other global vegetable oil markets rallied on Monday as traders bet on top buyers China and India snapping up more cargoes in the months to come. An industry conference in Mumbai forecast India will buy a record amount of vegetable oil in the new marketing year and China's Ministry of Commerce revised up its estimate for September soy imports.

 

Gold hits record at $1,300 an ounce

·         Silver at 30-year high; copper stalls ahead of $8,000

LONDON: Gold powered to a record high at $1,300 an ounce on Monday, with investors pouring more cash into the market on global economic health worries and the possibility of further quantitative easing to stimulate growth.

Oil falls below $76 a barel

LONDON: Oil fell below $76 a barrel on Monday, tracking weak stock markets, as the outlook for global economic recovery and future energy demand remained uncertain.

US MIDDAY: sugar soars

NEW YORK (September 28, 2010): Raw sugar futures closed at a seven-month high for the second straight day on Monday, while arabica coffee and US cocoa also finished higher. The spot October raw sugar contract surged 0.65 cent or 2.6 percent to close at 26.09 US cents per lb, with most-active March up 0.58 cent to end at 24.98 cents, the highest settlement for the second position since February.

Soybeans Technicals from Reuters

 SINGAPORE, Sept 24 (Reuters) - The CBOT soybean November futures contract <SX0> is still technically neutral, as it is rangebound between $10.78 and $11.00 per bushel. 

The range will soon be confirmed as either a bearish double-top or a bullish double-bottom, after the resistance at $11.00, or the support at $10.78, is broken. 

A break above $11.00 would trigger a rise to $11.13-3/4, the 161.8 percent Fibonacci projection level based on the length of wave "1", while a fall below $10.78 would extend its loss to $10.66-1/4, the 50 percent Fibonacci retracement level on the rise from $10.33 to $10.99-1/2.

Wheat Futures Advance as Cold Weather Threatens Crops in Canada, China

Wheat rose for the first time in four days as cold weather threatened crops in China and Canada, the world’s second-biggest exporter.

An overnight freeze damaged wheat, canola and barley in Alberta and Saskatchewan, said Drew Lerner, the president of World Weather Inc. in Overland Park, Kansas. In China, the cold may hurt corn in the biggest growing-region, according to the National Grain & Oils Information Center website. That may boost demand for wheat to use in livestock feed.

“Canada’s harvest problems are helping prices,” said Darrell Holaday, the president of Advanced Market Concepts in Manhattan, Kansas. “The Chinese freeze threat is another thing. We’re going from one weather scare to another.”

Wheat futures for December delivery rose 20 cents, or 2.8 percent, to close at $7.3925 a bushel at 1:15 p.m. on the Chicago Board of Trade, ending the week up 0.3 percent.

The price has gained 7.8 percent this month on speculation that reduced production in Russia and Ukraine will boost demand from other exporting countries.

The U.S. is the biggest wheat exporter, followed by Canada, Russia and Australia, according to the Department of Agriculture. The grain is the fourth-biggest U.S. crop, valued at $10.6 billion in 2009, behind corn, soybeans and hay, government data show.

Corn gained 3.5 percent today and is up 17 percent this month on speculation that adverse weather will curb production as demand rises.

“So much of the wheat in the world is used for feed,” Holaday said. “It’s tied at the hip to corn.”

To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net.