Forexpros – U.S. grain futures were lower during European morning hours on Thursday, with corn and wheat prices falling from the previous session’s multi-week highs amid disappointment over the lack of aggressive monetary stimulus from the Federal Reserve.
Meanwhile, soybean futures slumped to a two-day low amid concerns over a deeper-than-expected slowdown in top consumer China.
Agricultural commodities were affected by broader market risk aversion, following a raft of data showing more gloom about the global economy.
Manufacturing activity in China fell to a seven-month low in June, as export orders remained firmly in contraction.
China is the world’s largest consumer of soybeans and corn.
A deeper slowdown in China, the world’s second biggest economy, would impair a global expansion that is already faltering because of the euro zone’s ongoing sovereign debt crisis.
Manufacturing activity in Germany slowed to the lowest level in three years in June, renewing concerns over the impact of the euro zone’s sovereign debt crisis on the region’s largest economy.
Grain prices were already on the back foot after the Fed announced Wednesday that it was extending its current bond buying program, known as “Operation Twist”, until the end of the year and said that it was ready to take additional steps. The bond purchasing program had been due to expire at the end of this month.
Under Operation Twist, the Fed sells short-dated Treasury instruments and buys longer-dated Treasury’s in tandem with the aim of pushing down long-term interest rates.
The announcement disappointed market expectations for more aggressive measures to shore up growth in the world’s largest economy, following a recent string of weak U.S. data.
Sentiment was also dampened after Fed officials lowered their estimates for economic growth, citing a weak jobs market and a depressed housing sector.
The dollar index, which tracks the performance of the greenback against a basket of six other major currencies, was up 0.2% to trade at 81.76.
A stronger dollar reduces the appeal of U.S. crops to overseas buyers and makes commodities less attractive as an alternative investment.
On the Chicago Mercantile Exchange, corn futures for July delivery traded at USD6.0588 a bushel, retreating 0.9%. It earlier fell by as much as 1.35% to trade at a session low of USD6.0225 a bushel.
Prices touched a high of USD6.1688 a bushel on Wednesday, the highest since May 22.
Front-month corn futures rallied nearly 5.5% in the three sessions leading up to Thursday, as concerns over crop conditions in the U.S. corn-belt boosted sentiment on the grain.
But the strong advance prompted investors to cash out of the market to lock in profit amid concerns over a slowdown in global demand for the grain.
Corn prices have been boosted in recent sessions by concerns that dry soil in the U.S. corn-belt could strain the development of crops in the region, just as it enters its key pollination phase in the next few weeks.
The U.S. produced 38% of the world’s corn last year, making it the both world’s largest corn producing nation and the largest exporter of the grain.
Elsewhere, soybeans futures for July delivery traded at USD14.3613 a bushel, slumping 0.7%. It earlier fell by as much as 1.15% to trade at a two-day low of USD14.3113 a bushel.
Front-month prices touched a high of USD14.5112 on June 19, the highest since May 11.
Soy prices have risen almost 4.5% this week, as the same hot, dry weather that boosted corn was seen benefitting soy prices as well.
But fears that demand from top consumer will slow in the near-term prompted investors to cash out of the market.
China is the world’s largest soybean consumer and is expected to account for nearly 60% of global trade of the grain in the 2011-12 season, according to the U.S. Department of Agriculture.
Meanwhile, wheat for July delivery traded at USD6.5775 a bushel, shedding 0.85%. It earlier fell by as much as 0.4% to trade at a session low of USD6.5513 a bushel.
Prices rose to as high as USD6.6437 a bushel on Wednesday, the highest since May 29.
Wheat futures tacked on more than 8% in the three sessions leading up to Thursday, tracking strong gains in corn. Wheat and corn prices are linked because both can be used as animal feed.
Concerns over a disruption to supplies from the Black Sea-region further boosted prices this week after influential Russian industry group SovEcon cut its forecast for Russia’s wheat harvest to 50.0 million tonnes, down 3.0 million tonnes from a previous estimate, citing damage from dry weather.
Russia is a major wheat exporter and competes with the U.S. for business on the global market. A downbeat Russian crop outlook could boost demand for U.S. supplies, which is the world’s third largest wheat producer and biggest exporter.
Corn is the biggest U.S. crop, valued at USD66.7 billion in 2010, followed by soybeans at USD38.9 billion, government figures show. Wheat was fourth at USD13 billion, behind hay.
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