Monday, July 7, 2008

Commodities Slump, Led by Grains, as U.S. Crop Outlook Improves

By Millie Munshi

July 7 (Bloomberg) -- Commodities plunged the most since March, led by tumbling grain futures, as rains from eastern Colorado to Pennsylvania improved prospects for U.S. crops. Energy prices also dropped.

The Reuters/Jefferies CRB Index fell 2.8 percent to 460.23, the biggest drop since March 19. Corn, soybeans, wheat and cotton plummeted the maximum allowed by U.S. exchanges. Crude oil dropped 2.7 percent amid signs economic growth is slowing across Europe.

``There was a lot of room for supplies to improve for a lot of commodities,'' said Chip Hanlon, who manages $1.5 billion at Delta Global Advisors Inc. in Huntington Beach, California. ``Markets had been panicking because of one-time supply threats that no longer pose as much of a threat. It's going to be much quieter for commodities for the rest of the year.''

In June, corn surged 26 percent and soybeans jumped 15 percent after the worst Midwest floods since 1993 ravaged Missouri, Indiana, the eastern half of Iowa and south-central Illinois. On July 3, oil climbed to a record $145.85 a barrel amid heightened speculation that a conflict between Israel and Iran would disrupt Middle East petroleum shipments.

Seventeen of the 19 commodities in the CRB Index declined today. The gauge climbed to a record 473.97 on July 3.

Corn dropped 30 cents a bushel, and soybeans tumbled 70 cents a bushel, the Chicago Board of Trade's limits. Wheat dropped as much as 60 cents a bushel in Chicago, and cotton tumbled as much as 3 cents a pound, the most allowed by ICE Futures U.S.

Copper, cocoa and coffee also dropped as supply concerns dwindled. Gold and silver fell.

Dollar's Outlook

Investments linked to commodity markets totaled $235 billion through mid-April, according to Lehman Brothers Holdings Inc. The pace of investment will slow as the dollar rebounds through the end of the year, said William O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey.

Investors should be ``cautious'' on commodities following the ``significant rise'' in raw materials in the first half of the year, Andrew Popper, the chief investment officer at SG Hambros in London, said in an interview on Bloomberg Television. He helps manage about $13.7 billion.

Corn futures for December delivery fell 3.9 percent to $7.47 a bushel. The price declined 1.3 percent last week after reaching a record $7.9925 on June 27.

U.S. farmers will produce more corn than the government forecast last month after rain revived Midwest crops, Informa Economics Inc. said today.

Soybeans, Wheat

Soybean futures for November delivery plunged 4.3 percent, to $15.61 a bushel. The most-active contract still has surged 81 percent in the past year, reaching a record $16.3675 on July 3.

Wheat futures for September delivery fell 51.75 cents, or 5.8 percent, to $8.3575 a bushel on the CBOT. Earlier, the price touched $8.275.

Oil futures for August delivery declined $3.92 to $141.37 a barrel on the New York Mercantile Exchange. Earlier, the price touched $139.50.

Commodities fell earlier after a rebound in the dollar eroded the appeal of raw materials as alternative investments. The dollar was little changed against a weighted basket of the euro, yen, pound and three other major currencies after climbing as much as 0.6 percent.

``There's a growing psychology that the dollar has bottomed and that we're going to see some steady gains in the currency now,'' O'Neill of Logic Advisors said.

The euro may average $1.50 in the fourth quarter, according to the median of 38 analysts surveyed by Bloomberg. The euro was little changed at $1.5713 today.

Aluminum prices rose to a record in London as a power shortage forced smelters in the north of China, the world's largest producer of the metal, to reduce output.

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