Soybeans, Corn Decline on Bets China's Moves on Inflation to Damp Demand

Soybean and corn futures fell to five-week lows on speculation that demand will slow after prices reached 26-month high this month and China announced plans to slow growth to limit inflation.

China, the biggest consumer of soybeans, may impose temporary price controls to counter the fastest inflation in two years, the State Council said today. A consumer confidence index in the nation fell for the first time in six quarters. Last year, China was a net importer of corn for the first time since 1996 even as the government sold state-owned inventories.

“The markets are not out of the woods regarding slowing demand from China,” said Mike Zuzolo, the president of Global Commodity Analystics & Consulting in Lafayette, Indiana. “Price controls are not the long-term answer, but the markets are anticipating a possible slowdown in demand.”

Soybean futures for January delivery fell 14.75 cents, or 1.2 percent, to close at $12.05 a bushel at 1:15 p.m. on the Chicago Board of Trade. Earlier, the oilseed fell 44.5 cents $11.7525, the lowest level since Oct. 12.

Corn futures for March delivery fell 0.75 cent, or 0.1 percent, to close at $5.3925 a bushel, the seventh drop in eight sessions. Earlier, the price fell to $5.22, the lowest level for a most-active contract since Oct. 8.

Prices also fell today on speculation that China will raise borrowing costs in a bid to slow economic growth and rein in inflation. The nation is the world’s biggest food consumer. The Thomson Reuters/Jefferies CRB Index fell to the lowest level in four weeks today on concern Chinese demand will slow.

China ‘Fears’

“Driving the sell-off were fears China will raise interest rates and place tighter controls on consumer prices and agriculture commodities to control inflation,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “Price controls could reduce the amount Chinese companies are willing to pay for grains and soybeans.”

On Nov. 9, corn reached a 26-month high of $6.175 after the USDA said adverse weather had reduced the size of the domestic crop. Soybeans touched $13.485 on Nov. 12, the highest since August 2009, as Chinese demand surged.

Corn and soybeans rose earlier today after the United Nations’ Food and Agricultural Organization warned that rising demand will exceed production, said Brian Grete, the senior market analyst for Professional Farmers of America newsletter in Cedar Falls, Iowa.

The global cost of importing foodstuffs will jump 15 percent to $1.026 trillion in 2010, compared with $893 billion last year and $1.031 trillion in 2008, the Rome-based FAO said in a report today. The world faces “harder times ahead” unless production of major food crops rises next year, the agency said.

“For major cereals, production must expand substantially to meet utilization and to reconstitute world reserves,” the FAO said.

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

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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