Corn Extends Slump, Soybeans Drop as China Rate Boost, Dollar Curb Exports

Corn fell for the fifth straight session and soybeans declined after an interest-rate increase in China spurred speculation that slower growth and a rising dollar will reduce commodity demand.

The dollar jumped as much as 1.7 percent against a six- currency basket after China, the world’s largest grain and soybean consumer, raised rates to slow inflation. Corn has surged 54 percent since June 1 and soybeans gained 28 percent as the government reduced estimates for the U.S. crop and hedge funds increased their holdings.

“It’s a shock, not so much that China raised rates, but the timing,” because many economists expected the rate increase next year, said Dale Durchholz, the senior analyst for AgriVisor LLC in Bloomington, Illinois. “Everyone will wonder, ‘Is there more to come later if this one doesn’t slow the economy and speculation enough?’”

Corn futures for December delivery fell 11.25 cents, or 2 percent, to close at $5.46 a bushel at 1:15 p.m. on the Chicago Board of Trade, the first five-day slide since the end of June.

Soybean futures for January delivery fell 3.5 cents, or 0.3 percent, to close at $11.915 a bushel in Chicago, erasing an earlier gain of 0.9 percent.

Corn prices reached a two-year high of $5.88 a bushel on Oct. 13 and soybeans touched $12.145 on Oct. 15, the highest level in 16 months. This year’s rallies were sparked partly by adverse weather that reduced production in Russia, Ukraine, Canada, Europe and the U.S.

Speculator Holdings

Hedge-fund managers and other large speculators increased net-long corn positions, or bets prices will rise, for futures and options contracts by 2.3 percent to 410,439 in the week ended Oct. 12, data from the Commodity Futures Trading Commission show. That’s up five-fold from 80,743 net longs at the start of June.

In soybeans, large speculators were net-long 146,125 contracts as of Oct. 12, compared with a net-short position of 1,177 on June 1, CFTC data show.

The Thomson Reuters/Jefferies CRB Index of 19 commodities dropped the most since June 29, with 10 of the commodities declining more than 2 percent.

“Chinese interest rates and the value of the dollar don’t have much correlation, but it caught people leaning the wrong way,” said Roy Huckabay, the executive vice president for the Linn Group in Chicago. “Commodities bore the brunt of the dollar’s rally today.”

Corn is the biggest U.S. crop, valued at $48.6 billion in 2009, government figures show, followed by soybeans at $31.8 billion.

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

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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