Corn, Soybeans Rally as Crude Jumps, Boosting Demand Prospect

By Jae Hur

Sept. 17 (Bloomberg) -- Corn and soybeans advanced for the first day in three as crude oil rallied from a seven-month low on easing concern over the U.S. credit market, raising the appeal for the crops as alternative fuel sources.

Oil rose from its biggest two-day drop in almost four years after the U.S. government agreed to rescue American International Group Inc., lowering concern a collapse will cause more credit- market losses. Investors had sold commodities to raise cash and cover losses in other markets after credit turmoil pushed Lehman Brothers Holdings Inc. to bankruptcy, sending equities tumbling.

``The U.S. government's decision on AIG has put a break on worsening investment sentiment,'' Nicholas Chung, senior manager of the commodity derivatives team at state-run Korea Development Bank, said in Seoul. ``After being undermined by financial market factors, grains will now be driven by their own fundamentals.''

Corn for December delivery gained as much as 8.5 cents, or 1.6 percent, to $5.4075 a bushel in after-hours trading on the Chicago Board of Trade and was at $5.3725 by 11:25 a.m. Singapore time. The contract lost 5.3 percent yesterday, the biggest drop since Oct. 2.

Soybeans for November delivery added as much as 17 cents, or 1.5 percent, to $11.41 a bushel and last traded at $11.3675. The contract lost 4.7 percent yesterday to close at $11.24, the lowest close for a most-active contract since Dec. 7.

The Federal Reserve Board, with support of the U.S. Treasury, invoked emergency powers to bail out AIG, the biggest U.S. insurer by assets. AIG needed the rescue to stave off a collapse after its credit ratings were cut and shares plunged 79 percent since Sept. 11.

Crude for October delivery rose as much as 3.9 percent to $94.72 a barrel after declining more than $10 a barrel, or 9.9 percent, in the past two days.

U.S. Soybeans

Farmers will harvest 1.8 percent less corn than forecast last month and 1.3 percent fewer soybeans, the U.S. Department of Agriculture said Sept. 12 in a report.

The USDA reduced the corn-crop forecast to 12.072 billion bushels from the 12.288 billion it estimated last month. The soybean crop estimate also declined to 2.934 billion bushels from the 2.973 billion projected in August.

A rebound in the Baltic Dry Index, a measure of shipping costs for commodities, also provided support for corn and soybean prices, Chung said.

The Baltic Dry Index rose to end a 19-session decline. The index tracking transport costs on international trade routes closed up 0.3 percent at 4,760 points, according to the Baltic Exchange in London.

Wheat for December delivery rose as much as 20 cents, or 2.9 percent, to $7.10 a bushel and stood at $7.0625 by 11:30 a.m. Singapore time. The contract fell 5.1 percent yesterday, the biggest decline for a most-active contract since Aug. 8.

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net