Corn, Cattle, Pork Futures Prices Tumble On Commodities Market As Speculators Flee

Chicago, IL (AHN) - Speculators getting out of the corn, cattle and pork futures market on Friday caused prices on the Chicago Board of Trade to tumble.

Corn is the primary feed ingredient for hog and cattle feed and makes up a significant amount of producer's costs. Corn futures prices dropped after the U.S. Department of Agriculture issued new corn production estimates on Friday predicting a bumper crop of corn.

New government estimates from a month earlier for nationwide corn production rose 1 percent to an expected 12.22 billion bushels, a record 154 bushels per acre, while the expected soybean harvest went up by 2 percent to 2.98 billion bushels.

While those estimated crop yields should eventually help consumers with lower food prices for items made from corn or soybeans, it is bad news for market speculators who were making money by trading in futures on the livestock and commodities markets.

"Cheap corn makes cheap livestock," a hog futures trader told Dow Jones Newswires.

But not everyone sees the price drops in the livestock and grain commodities markets as being a result of revised corn crop forecasts.

They see the sell-off in grains futures as part of a broader flight of investment money from commodities that could continue through this year because of the expanding credit crisis and a possible global recession reducing demand for commodities.

Much of that concern is because index funds, and other investment vehicles, that hadn't traditionally invested in the grain and other commodities markets did so in recent years as they shifted away from equity market to try and get better investment returns.

Now, no one is sure if if those funds will stay in the commodities market or liquidate their holdings. If index funds liquidate, it would probably drive commodities futures prices lower, analysts say.

"There are estimates that by the end of the year about 30 per cent of the index funds' positions are going to get liquidated," grains analyst Charlie Sernatinger, of Fortis Clearing Americas in Chicago, told Reuters.

"That is the big question mark in the market. In order to get some stabilization in prices, you are going to need some clarification that index funds are not going to get out of their big long positions," he added.

On the Chicago Board of Trade futures contracts for corn and soybeans fell by their legal limits of 30 cents per bushel for corn and 70 cents per bushel for soybeans on Friday.

That put futures contracts at $4.08 per bushel for corn and $9.10 per bushel for soybeans. Contrast those prices to July when a rush of speculative money pushed corn prices to $8 per bushel and soybeans to $16 per bushel.

Adding to the uncertainty in the market are two factors.

One is that no one is sure what percentage of the corn crop individual farmers have contracted out as futures.

The other is that the commodities market aren't following the classic market theory of behavior that has been money flows to commodities and real estate when equity markets weaken.

Broker Sue Martin owns Ag Investors in Webster City, Iowa and told the Des Moines Register that she has watched the grain markets for 35 years. She said she was surprised by the way the corn and soybean markets have followed the Dow Jones industrial average downward.

"That hasn't happened very often," Martin told the Register. "The grain markets are always a little weak going into the harvest, but then you throw in the mix of emotions in the outside markets and selling by the hedge funds that bought heavily in commodities last summer and you see this massive exodus from the markets and they begin crashing."