Corn, Soybeans Drop as Credit Crunch May Cut Demand

By Jeff Wilson

(Corrects date in fourth paragraph.)

Oct. 6 (Bloomberg) -- Corn and soybeans fell the most allowed by the Chicago Board of Trade on concern that the widening credit crunch will deepen a global economic slump, cutting demand for animal feed and fuel made from the crops.

Stocks tumbled around the world, Treasuries rose and crude oil dropped below $88 a barrel as the credit-market seizure caused bank bailouts to spread. The Reuters/Jefferies CRB Index of 19 raw materials fell to the lowest in 13 months with only gold posting a gain among energy, metal and agriculture prices.

``It's all about a lack of global banking liquidity,'' said Roy Huckabay, an executive vice president at the Linn Group in Chicago. ``Everything is frozen, even if the drop in prices is beginning to make livestock feeding more attractive.''

Corn futures for December delivery dropped by the limit of 30 cents, or 6.6 percent, to $4.24 a bushel on the CBOT, the lowest since Dec. 12. The price reached a record $7.9925 on June 27.

Soybean futures for November delivery tumbled by the limit of 70 cents, or 7.1 percent, to $9.22 a bushel, the lowest since Oct. 9, 2007.

Last week, corn fell 16 percent, the most since at least June 1973, and soybeans dropped 15 percent, the most since June 2004. Corn has declined 47 percent from the record, and soybeans have lost 44 percent from the all-time high of $16.3675 on July 3.

Trading limits on corn will expand 50 percent to 45 cents a bushel tomorrow and soybeans will rise to $1.05. Based on closing option prices, December corn was bid at $4.11 and November soybeans were bid at $9.16, according to Mike Zuzolo, the president of Risk Management Commodities Inc. in Lafayette, Indiana.

Hedge Funds, Speculators

Hedge-fund managers and other large speculators slashed net-long positions, or bets prices will rise, by 11 percent to 168,690 contracts in Chicago corn futures in the week ended Sept. 30, the lowest in 11 months, Commodity Futures Trading Commission data showed on Oct. 3.

Index funds that invest in baskets of commodities cut net- long positions by 3.8 percent to 305,839 contracts last week, down 32 percent from a record 452,568 contracts in April.

In soybean futures, speculative funds reduced net-long positions by 8.6 percent to 48,948 contracts in the week ended Sept. 30, CFTC data show.

Index funds that invest in baskets of commodities reduced net-long positions by 3.4 percent to 130,092 soybean contracts in the week ended Sept. 30. That was down 35 percent from a record of 198,707 in February.

``Until credit markets thaw, there is no other story in commodities or investing,'' said Jim Gerlach, the president of AC Trading Inc. in Fowler, Indiana. ``The market makeup continues to point to more pressure in the grains.''

Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, followed by soybeans at $26.8 billion, government figures show.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net