US and European grain futures fell sharply on Monday as a US debt downgrade fanned fears about the global economy and sparked fresh selling of commodities and shares. Major Asian and European equity markets tumbled despite efforts by global policy makers to stem a collapse in investor confidence, while gold prices surged to a record above $1,700 an ounce.
Standard & Poor's cut on Friday its long-term US credit rating by one notch, depriving the world's largest economy of the prized AAA rating and deepening anxiety about the risk of a fresh economic downturn. The grain complex had held up relatively well during investor sell-offs last week, notably supported by concerns over the US corn crop after hot weather last month, but with this weather risk priced in and economic uncertainty mounting, grains made a much weaker start to the new week.
It is more of a macro story today, it is continued flight to safety and that suggests outflow of capital from agricultural commodities," said Brett Cooper, a senior markets manager at FCStone Australia. I think the market has probably priced in much of the fundamental news at the moment." Chicago Board of Trade September corn fell 2.13 percent to $6.78-1/4 a bushel by 1214 GMT and September wheat slid 2.76 percent to $6.60-1/4. August soybeans were down 1.20 percent at $13.15-1/2. Tumbling crude oil, which gave up more than $3 a barrel, also weighed on grains, with corn and oilseeds widely used in making alternative fuels.
USDA EYED FOR CORN In Europe, benchmark November milling wheat was down 2.43 percent at 190.75 euros a tonne, while November rapeseed slipped 2.32 percent to 410.75 euros to approach a key support at 410 euros. Losses had been limited in early European trading as investors took comfort in the European Central Bank's move to buy Spanish and Italian bonds to halt contagion from the euro zone debt crisis. This formed part of a clutch of initiatives by policymakers to assuage markets, with Group of 20 economic powers also pledging to take action to ensure stability and growth.
But economic jitters soon intensified and led to heavier losses across markets. "The downgrading of the US debt is quite something. It was partly expected but now it's happened," Cedric Weber of grain analysts Offre & Demande Agricole. "For the moment it's corn that's allowing grain markets to hold up but there is a lot of macro newsflow." Grain operators are looking ahead to Thursday's monthly supply/demand estimates from the US Department of Agriculture for a clearer assessment of US corn yields and production.
In a Reuters poll last week, US corn yield estimates among 12 analysts was 155.2 bushels per acre (bpa). The figure is 3.5 bushels below the USDA's current corn yield forecast of 158.7 bpa. Still, forecasts for cooler temperatures and showers in the US crop belt could add pressure on grain futures.
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