Bloomberg News

Corn, Silver, Rubber Expanding Bear Markets on Supply

April 01, 2013

Corn, silver and rubber tumbled into bear markets, joining slumps in commodities such as sugar and wheat, on signs that expanding supplies will outpace demand amid increasing concern that global growth will falter.

The price of corn in Chicago plunged the most in 24 years yesterday, leaving futures down 23 percent from last year’s closing high and exceeding the 20 percent benchmark for bear markets. The Standard & Poor’s GSCI Agriculture Index of eight raw materials touched a nine-month low yesterday, falling 21 percent from its 2012 peak. Silver in New York and rubber in Tokyo were down more than 20 percent from closing highs.

A gauge of manufacturing in China showed expansion was slower than analysts forecast, and a U.S. factory index fell more than expected in March, reports showed yesterday. The U.S. predicted last week that farmers will plant the most corn acres this year since 1936. Last month, Cyprus became the fifth nation to seek a rescue since the start of Europe’s debt crisis in 2009, and the 17-nation euro area is mired in recession.

“You really need Europe to switch into neutral instead of reverse to get any kind of excitement about commodities,” John Stephenson, senior vice president and portfolio manager, who helps manage about C$2.7 billion ($2.66 billion) at First Asset Investment Management Inc. in Toronto, said in a telephone interview. There’s “decent global growth, but just still not enough to move the needle,” he said.

Rising supplies

The S&P GSCI agriculture gauge is down 7.1 percent this year, while the MSCI All-Country World Index of equities rose 5.5 percent. The dollar added 3.7 percent against a basket of six trading partners. Treasuries lost 0.3 percent, a Bank of America Corp. index shows.

Production will exceed demand in aluminum, copper, lead, nickel and zinc in 2013, Barclays said in a March 14 report. Cotton and sugar also will see surpluses, according to Rabobank International.

Corn inventories in the U.S., the world’s biggest grower and exporter, totaled 5.399 billion bushels on March 1, the Department of Agriculture said March 28. While down from a year earlier, that’s still above the 4.995 billion forecast by analysts surveyed by Bloomberg News. Farmers will plant 97.282 million acres this year, the most in 77 years, the USDA said.

‘Distorted pricing’

Corn futures for May delivery plunged 7.6 percent yesterday on the Chicago Board of Trade, the biggest drop since 1988, to close at $6.4225 a bushel. Prices touched $6.365, the lowest for a most-active contract since June 29. The grain has tumbled from last year’s closing high on Aug. 21 of $8.3875. Corn is the most-valuable in the U.S., followed by soybeans, hay and wheat, government data show.

Last year’s drought in the U.S., the worst since the 1930s last year, cut domestic corn output by 13 percent and sent prices to a record $8.49 on Aug. 10. Wheat surged 19 percent last year as the dry conditions left fields in their worst condition since the government began keeping the data in 1985. Demand slowed as prices increased.

“You’ve got the agricultural sector coming off the drought-distorted pricing,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $325 billion of assets. “Some of those prices are starting to come back to earth, keeping commodity-price trends somewhat depressed.”

Bear Markets

The S&P’s GSCI Agriculture Index settled at 419.14 yesterday, down 21 percent from last year’s closing high of 533.03 on July 20. The gauge fell as much as 4.1 percent to 417.16, the lowest since June 25.

Wheat entered a bear market in January as prospects for crops improved and speculation increased that last year’s price gain would prompt farmers to plant more. Futures for May delivery dropped 3.5 percent to $6.64 a bushel in Chicago, after reaching $6.5975, the lowest for a most-active contract since June 20. Prices have fallen 30 percent from the last year’s closing peak of $9.4325 a bushel on July 20.

Soybean futures for May delivery declined 1 percent to $13.9075 a bushel on the CBOT yesterday, after touching $13.8625, the lowest for a most-active contract since Jan. 14. Prices are down 21 percent from the last year’s closing peak of $17.6825 a bushel on Sept. 4.

The Institute for Supply Management’s factory index fell to 51.3 from an almost two-year high of 54.2 in February, the Tempe, Arizona-based group’s figures showed yesterday. The Chinese Purchasing Managers’ Index was 50.9, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday in Beijing. The median estimate of analysts in a Bloomberg News survey was 51.2.

Rising inventories

On the Comex in New York, silver futures for May delivery fell 1.3 percent to settle at $27.944 an ounce. The price is down 20 percent from a close of $35.101 on Oct. 4. Imports by China, the biggest user of the metal after the U.S., fell the most in two years in February, the fifth decline in six months, the latest customs data show. Silver reached a 31-year high in April 2011 as global central banks increased monetary easing, boosting its appeal as an inflation hedge.

Inventories of silver monitored by the Comex on March 26 reached the highest since August 1997. Sales of American Eagle silver coins by the U.S. Mint have declined for two straight months.

“Silver has taken it on the chin,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “China slowdown worries and fear of stimulus measures ending in the U.S. have worked against silver.”

Rubber Drop

Rubber also fell into a bear market as expanding stockpiles in China signaled easing demand from the world’s largest consumer of the commodity used in tires. Rubber for delivery in September on the Tokyo Commodity Exchange, the international benchmark, dropped 2.6 percent to 266.9 yen a kilogram ($2,844 a metric ton), a 20 percent decline from this year’s highest settlement for a most-active contract of 334 yen reached Feb. 6.

Inventories in warehouses in Qingdao, China’s main shipment hub, reached an all-time high on March 15 as the nation’s industrial production and retail sales in China had the weakest start to a year since the global recession in 2009.

“I’d be cautious,” said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York- based Aegis Capital Corp. “I’m not convinced we’re going to see this great bull run yet. The emerging economies, while they’ve grown tremendously, there’s not enough intrinsic domestic demand to drive the whole complex.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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