Corn futures in Chicago plunged over 5 percent to the lowest levels in over 10 weeks and cattle and hog prices also dropped sharply amid a broad commodity sell-off sparked by fears of global recession.
Growing concern over a Greek debt default combined with signs of weakness in China and further erosion in the U.S. economy triggered steep declines in worldwide stock markets, prompting investors to sell commodities ranging from oil to gold to grains.
“There was a whole lot of ‘get me out’ today,” said Ed Van, a broker in CME Group’s corn options pit. “They were selling all commodities. Crude (oil), gold, you name it.”
In trading Sept. 22, CME Group corn futures for December delivery dropped 35 ¾ cents to $6.50 a bushel, the contract’s lowest settlement since July 11. Futures are down 16 percent since rallying Aug. 30 to $7.75 ¼, the highest closing price for a December contract since July 2008.
Crude oil futures sank over 6 percent and livestock prices also tumbled, reflecting speculation people will eat fewer steaks and other higher-priced foods if the economy worsens. Additionally, the dollar’s recent upswing to its strongest level against the euro since February could hurt meat export demand, analysts said.
The dollar’s strength “has made U.S. meat protein and grains more expensive for foreign buyers while making imported beef and other meat protein less expensive for U.S. buyers,” analysts Steve Meyer and Len Steiner wrote in CME’s daily livestock report Sept. 22.
“Cattle prices are also down, in part because of the expected lower exports but also because of fears that another recession will hit beef prices hardest,” Meyer and Steiner said. Since last spring, “we have seen a significant deterioration in world economic conditions and there is a real likelihood of a full-blown financial and debt crisis triggered by a Greek sovereign debt default.”
October live cattle futures fell 3 cents, the maximum daily moved allowed by the exchange, to $1.1625 a pound, the lowest settlement since Sept. 1. Lean hog futures for October delivery fell 0.925 cent to 88.35 cents a pound. Hog futures are still up 1.1 percent this week and reached a five-week high at 89.825 cents on Sept. 21.
Since the end of August, the euro has lost about 6 percent of its value against the dollar, trading around $1.35 Sept. 22.
While grain and livestock prices remain historically high even with the recent slump, September has continued to bring increasingly troubling developments for U.S. agricultural producers and the global economy in general. On Sept. 21, the Federal Reserve said the U.S. economy faces “significant downside risks” as the central bank announced a plan to buy long-term bonds in an effort to stimulate growth, according to news reports.
“The greater focus is on broad global demand, given the downturn in global growth expectations,” BB&T Capital Markets analyst Heather Jones said in a Sept. 22 report.
Van, the CME options broker, said the corn market’s downside is probably limited because adverse weather curbed this year’s harvest prospects, keeping grains supplies tight amid strong demand from the ethanol industry.
In a Sept. 12 report, the U.S. Department of Agriculture cut its estimate for the corn crop by 3.2 percent, to 12.5 billion bushels, and projected average nationwide yields at a six-year low, citing extreme heat over the summer.
“Yields haven’t gotten significantly better,” Van said, referring to the U.S. corn crop. “I don’t see this going (down) much further, because this crop is not that good, unless demand totally disintegrates.”