23 February

Source: Bloomberg

Grain prices plunged on the Chicago Board of Trade as protests in North Africa and the Middle East threaten to slow demand for supplies from the U.S., the world’s largest shipper of corn, soybeans and wheat.

Protesters clashed with government forces today in Libya, where more than 200 people have been killed, Human Rights Watch said. In the past month, popular uprisings toppled regimes in Tunisia and Egypt, the world’s largest wheat buyer. Russian President Dmitry Medvedev said extremism may spread in the Middle East, causing Arab states to “fall to pieces.”

Before today, crop prices surged to the highest since 2008 as world demand growth eroded inventories, and as droughts and flood disrupted harvests from Russia to Canada. Global food prices jumped 25 percent last year and surged to a record in January, according to the United Nations.

“Turmoil and uncertainty in the Middle East and North Africa have encouraged traders to cut long positions in the grain markets, even with strong supply-and-demand fundamentals,” said Roy Huckabay, an executive vice president for the Linn Group in Chicago. “Today is all about speculators reducing riskier positions and consumers waiting for lower prices before buying.”

Corn futures for May delivery tumbled the exchange’s 30- cent limit, or 4.2 percent, to settle at $6.9025 a bushel at 1:15 p.m. in Chicago. Earlier, the most-active contract touched $7.4425, the highest since July 2008.

Soybean futures for May delivery fell by the 70-cent limit, or 5.1 percent, to $13.11 a bushel. That marked the lowest level for a most-active contract since Dec. 20.

Wheat Plunges

Wheat futures for May delivery dropped the 60-cent limit, or 7 percent, to settle at $7.9575 a bushel. The most-active contract is still up 54 percent in the past year, as demand gained for U.S. supplies after drought cut output in Russia and floods eroded Australian crops.

“It’s got people nervous, with all that’s going on in North Africa,” said Darrell Holaday, the president of Advanced Market Concepts in Manhattan, Kansas. “If they continue to have problems, some wheat demand out of the U.S. may go away.”

Rice futures for May delivery sank by the CBOT limit of 50 cents, or 3.3 percent, to $14.575 per 100 pounds. The most- active contract is up 5.3 percent in the past year.

Agricultural markets will remain volatile as demand is rising and world stockpiles are low, according to Juergen Voegele, the director of agriculture at the World Bank. Prices have rallied in the past year as China became a net importer of corn for the first time in 14 years and bought record quantities of U.S. oilseeds.

Speculator Holdings

Hedge fund managers and commodity-trading advisers held 655,868 bets on higher prices in corn, soybeans, wheat and rice as of Feb. 15, down 3.7 percent from a week earlier, the most recent government data show. Speculators more than doubled long positions from 285,982 contracts at the end June as corn prices climbed 88 percent during that period, wheat gained 82 percent and soybeans and rice rose more than 50 percent.

“This is mostly a speculative thing,” said Jack Scoville, a vice president at Price Futures Group Inc. in Chicago. “I don’t think this has much to do with fundamentals, except the fundamental of panic.”

May corn options, which give the holder the right to buy or sell the grain at a set cost, signal prices that are about 8 cents lower per bushel than the futures contract, said Charlie Sernatinger, a vice president for ABN Amro Clearing LLC in Chicago. Options for soybeans show prices are about 2 cents lower than futures, and for wheat about 0.5 cent weaker, he said.

Corn is the biggest U.S. crop, valued at $66.7 billion in 2010, followed by soybeans at $38.9 billion, government data show. Wheat was fourth at $13 billion, behind hay.