COMMODITIES : Big Selloffs Hurt Grain, Soybean Prices

Grain and soybean futures prices closed mostly lower Friday on the Chicago Board of Trade, astonishing analysts who had expected a strong performance following the government’s pessimistic crop production report.

The volatility of the grain markets, attributed by some to massive trades by a handful of firms, sent tremors through several other commodity markets that frequently look to Chicago for direction.

Sugar and cotton futures plunged; livestock and meat futures were mostly lower; precious metals advanced; energy futures were lower, and stock-index futures retreated.

Corn, oat and soybean futures opened sharply higher as expected. But corn prices plunged their permitted daily limit of 10 cents a bushel shortly after the opening, sparking a selloff in the adjacent trading pits.

Only oat futures closed higher, while most corn futures finished limit down.

Corn Price Plummets

“It’s astonishing,” said Katharina Zimmer, grain analyst with Merrill Lynch Capital Markets in New York. “I really don’t understand it.”

“I’ve been doing this for eight years and this is my most frustrating day ever,” said Richard Loewy, senior grain and oil seed analyst with Prudential-Bache Securities Inc. in New York.

In a report issued Thursday afternoon, the Agriculture Department predicted that the Midwestern drought would lower this year’s U.S. corn production by 37%, soybean production by 23% and wheat production by 14%, compared to last year’s yields.

Analysts had expected a sharp rise in crop futures prices Friday, reflecting the increasing value of diminishing grain supplies. But after the initial surge, several large trading firms sold huge amounts of corn, which sent corn prices plummeting.

Traders said Chicago-based C&D; Commodities sold at least 20 million bushels of corn alone. Other large sellers reportedly included Refco Inc., Shearson Lehman Hutton Inc. and Merrill Lynch Futures Inc.

Loewy said a handful of firms were bullying the grain markets. But Mario Balletto, Merrill Lynch’s soybean analyst, said the selloff would not had occurred if the market’s major players had truly been surprised by the USDA crop estimates.

“I guess the markets may be giving us a signal today that the USDA report did not provide any new bullish information that wasn’t already in the market,” Balletto said.

Wheat settled 1 cent to 3.5 cents lower, with the contract for delivery in September at $3.7975 bushel; corn was 3.75 cents to 10 cents lower, with September at $2.8725 a bushel; oats were 4.5 cents to 6.5 cents higher, with September at $2.80 a bushel; soybeans were 12 cents lower to 2.5 cents higher, with August at $8.485 a bushel.

Sugar Sharply Lower

Cotton futures prices collapsed in reaction to the crop report, which projected a 1.2% increase in cotton production while virtually every analyst was expecting a reduction.

Cotton futures settled down the 2-cents-a-pound limit across the board on the New York Cotton Exchange, with the contract for October delivery at 53.28 cents a pound.

Sugar futures followed the grain markets’ wild swing and closed sharply lower on New York’s Coffee, Sugar & Cocoa Exchange.

“There’s an old saying: ‘When in doubt, get out,’ ” said Erik Dunlaevy, a sugar trader with Balfour Maclaine Corp. in New York. “If you don’t understand the market, don’t get into it, get out of it.”

Sugar for October delivery settled 0.63 cent lower at 10.77 cents a pound.

Cattle and pork futures finished mixed to lower on the Chicago Mercantile Exchange. Analysts said the lower grain futures--portending lower feed prices and possibly higher meat supplies--were the main influence.

Live cattle settled 0.18 cent lower to 0.23 cent higher, with August at 69.15 cents a pound; feeder cattle were 0.10 cent lower to 0.15 cent higher, with August at 81.05 cents a pound; hogs were 1.12 cents lower to 0.28 cent higher, with August at 46.90 cents a pound; frozen pork bellies were 1.15 cents to 1.55 cents lower, with August at 34.17 cents a pound.

Energy Futures Dip

Precious metals futures advanced on news that wholesale prices climbed 0.5% in July, said Peter Cardillo, commodity futures trading adviser for Josephthal & Co. in New York.

Gold settled $2 higher across the board with August at $431.30 an ounce; silver was 2.5 cents to 2.7 cents higher with September at $6.74 an ounce.

Energy futures prices retreated in technically inspired trading on the New York Mercantile Exchange.

West Texas Intermediate crude oil settled 7 cents to 26 cents lower, with September at $15.52 a barrel; heating oil was 0.30 cent to 0.56 cent lower, with September at 44 cents a gallon; unleaded gasoline was 0.04 cent to 0.53 cent lower, with September at 45.98 cents a gallon.

Stock-index futures retreated slightly on the Chicago Mercantile Exchange, where the contract for September delivery of the Standard & Poor’s 500 stock index settled 0.65 point lower at 262.55.

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