Grains, Soybeans Drop as Plunging Stock Markets Curb Demand

By Jeff Wilson

Nov. 20 (Bloomberg) -- Corn, soybeans and wheat plunged as global stocks tumbled to a five-year low, increasing speculation that a weakening world economy will curb demand for food, animal feed and alternative fuels made from crops.

The MSCI World Index dropped as much as 5 percent to the lowest level since April 2003. Global equities have lost more than $32 trillion amid the worst financial crisis since the 1930s. Wheat, soybean and corn prices are down 48 percent or more from records this year.

``Record prices earlier this year set in motion declining demand and now the markets are fearful of demand destruction'' during a global recession, said Gary Rhea, president of Risk Management Partners in Des Moines, Iowa. ``Demand is declining until lower prices improve buying interest.''

Corn futures for December delivery fell 15 cents, or 4 percent, to $3.6375 a bushel on the Chicago Board of Trade. Earlier, the price touched $3.6025, matching a one-year low set on Nov. 11. The most-active contract is down 54 percent from a record $7.9925 on June 27.

Soybean futures for January delivery slid 41 cents, or 4.6 percent, to $8.56 a bushel in Chicago, after reaching $8.545, the lowest since Oct. 27. Most-active futures are down 48 percent from a record $16.3675 on July 3, touching a 13-month low at $8.38 on Oct. 16.

Wheat for March delivery plunged 15.5 cents, or 2.8 percent, to $5.31 a bushel in Chicago, dropping for a fourth straight day. Futures are down 61 percent from a record $13.495 on Feb. 27.

Reduced Meat Demand

The slowing economy eventually will reduce demand for beef and pork from both domestic and overseas consumers, said Dale Schultz, a commodity specialist for Gottsch Enterprises, a cattle and hog feeder in Hastings, Nebraska. Reduced meat demand means smaller herds and reduced consumption of animal feed.

U.S. feedlot operators probably cut purchases of young cattle by 9.7 percent in October, after losing money for 17 straight months and as a slumping global economy raised concern beef demand will fall, a Bloomberg survey showed. The U.S. Department of Agriculture will update its feedlot-inventory numbers tomorrow at 3 p.m. in Washington.

Feedlots buy year-old animals that weigh 500 pounds (227 kilograms) to 800 pounds and fatten them on corn until they weigh about 1,200 pounds and are sold to slaughterhouses.

U.S. beef export sales totaled 4,249 metric tons last week, down 77 percent from the previous week, the USDA said today. Pork exports fell in four straight months through September, according to the most recent USDA data.

`Not Much Enthusiasm'

``There is not much enthusiasm'' to feed cattle with feedlots losing money and the negative outlook for beef exports, Schultz said. ``The key is meat exports and some buyers are finding cheaper substitutes or simply going without.''

Falling global stock markets and consumer confidence are reducing overseas demand for higher-priced U.S. grain, said Dan Cekander, a senior grain analyst for NewEdge USA LLC.

Egypt, the world's largest importer of wheat, agreed to buy 30,000 metric tons of Russian wheat at a tender today. The grain is for delivery between Dec. 15 and Dec. 31, Nomani Nomani, deputy chairman of the General Authority for Supply Commodities, said today by telephone from Cairo. The price was $160 a ton, about $20 below current U.S. export offers, Cekander said.

U.S. exporters sold 433,800 metric tons of corn in the week ended Nov. 13, down 15 percent from the prior four-week average and 77 percent smaller than a week earlier, the USDA said in a report. Total sales for delivery before Aug. 31 are down 45 percent from a year earlier.

Cheaper Supplies

``There are cheaper supplies of wheat outside of the U.S.'' for bread and flour makers and livestock producers, Cekander said. ``The corn-export sales pace remains anemic.''

Importers of animal feed in Asia have slowed purchases because of the credit crisis, said Gregg Hunt, a market analyst for Fox Investments in Chicago.

South Korea, Indonesia and other buyers of soybean meal are delaying purchases because of a collapse in trade financing, thwarting plans by India, Asia's biggest exporter, to boost shipments to a record.

Asian importers including Vietnam are struggling to secure credit as banks hoard capital. Indian shipments may total 5 million tons in the year from Oct. 1, less than the 6 million tons forecast in September, said Rajesh Agrawal, a spokesman for the Soybean Processors Association of India.

``The buyers of India's soybean meal are the same customers for U.S. supplies,'' Hunt said. ``The credit crisis is spreading to agriculture.''

Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat is the fourth-biggest crop, behind hay, with a value of $13.7 billion.

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