Corn, Soybeans Decline as Slowing World Economy Cuts Grain Use

By Jeff Wilson

Oct. 31 (Bloomberg) -- Corn and soybeans fell, capping their fourth straight monthly declines, on speculation the deepening economic slump is reducing global demand for food, animal feed and fuel made from the crops.

The U.S. said today that consumer spending tumbled in September by the most in four years, after yesterday reporting the biggest contraction in the economy since 2001. A rally in the dollar also made commodities more expensive for importers using other currencies. Corn fell 18 percent this month and soybeans dropped 11 percent.

``Now the worry is that the U.S. problems will become a global recession,'' said Jim Riley, a broker and analyst at the Linn Group in Chicago. ``Confidence has been shaken and the demand is declining'' for agricultural commodities.

Corn futures for December delivery fell 8 cents, or 2 percent, to $4.015 a bushel on the Chicago Board of Trade. The most-active contract has tumbled 50 percent from an all-time high of $7.9925 on June 27.

Soybean futures for January delivery fell 10 cents, or 1.1 percent, to $9.33 a bushel in Chicago. The price has dropped 43 percent from a record $16.3675 on July 3.

Still, corn rose 7.7 percent this week and soybeans gained 7.6 percent, the first such gains in five weeks.

The biggest monthly rally by the dollar in 16 years eroded the appeal of U.S. commodities, Riley said. Crude oil fell 33 percent in October, a record monthly drop, signaling waning demand for fuel additives such as ethanol and biodiesel made from crops, he said.

Dollar Rally

``The dollar's rally has been the driver for falling grain prices,'' Riley said. ``Corn has been following crude oil lower.''

The Reuters/Jefferies CRB Index of 19 raw materials fell 22 percent in October, the largest monthly drop in five decades. All 19 commodities fell, led by a 42 percent plunge in gasoline and a 35 percent drop in copper.

Spending by U.S. consumers in September slipped 0.3 percent, more than forecast, capping the weakest quarter in three decades and indicating the economic slump is deepening, the Commerce Department said today in Washington.

``It's going to take a while before confidence returns,'' said Greg Wagner, senior market analyst for AgResource Co. in Chicago. ``I question whether there will be a renewed appetite for agricultural commodities in the near future because so many consumers were burned by high prices earlier this year.''

U.S. exporters sold 413,100 metric tons of corn in the week ended Oct. 24, down 50 percent from the previous four-week average, the Department of Agriculture said yesterday. Sales for delivery in the year ending Aug. 31 are 40 percent below the same period a year earlier.

Declining Demand

Corn demand is declining as buyers substitute cheaper wheat and supplies from other exporters, said Jeff Hainline, president of Advance Trading Inc. in Bloomington, Illinois. U.S. corn offered for sale to buyers in the Middle East is 90 cents a bushel over futures, 10 cents higher than quotes from Brazil and 40 cents over supplies from Ukraine, Hainline said.

World wheat production will rise 12 percent to a record 683 million metric tons in the year ending June 2009, up from 610 million tons this past year, the International Grains Council said yesterday in a report. World exports are forecast to rise 6.4 percent to 117 million tons.

Global corn production will fall 1.8 percent to 773 million tons, the Council said. Exports will drop 14 percent to 86 million tons. World inventories on June 30 will total 111 million tons, down 13 percent from a year earlier, the IGC said.

``The U.S. is the third-cheapest corn supplier to the world market,'' Hainline said. ``Demand going forward is likely to continue to decline.''

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