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Capital Flight from Commodities Hammers Corn

Good news in the corn market was hard to find last week. Indeed, the only solace was that it wasn't alone. Prices of just about everything, save Treasuries and the dollar, had a terrible week. If ever the phrase "misery loves company" fit, this was it.

Some of the weakness in corn was real, most imagined. Fundamentals took mostly a bearish turn: USDA raised its estimate of Sept. 1 old crop carryout by almost 48 million bushels, exports remain sluggish and crop ratings showed unexpected improvement just as harvest supplies caused some elevator hedging.

But much of the 89-cent drop in December futures was caused by outside markets, or at least outside market influences. Fear drove money out of banks and money markets and into Treasuries, causing a surge in the greenback to 13-month highs, a move that typically is bearish commodities. The chaos on Wall Street continued to cause hedge funds to liquidate positions across the commodity spectrum to cover losses or pay for redemptions from nervous investors. Index funds, which are supposed to be in it for the long haul, also continued to exit, though they remain net long more than 1.5 billion bushels.

By week's end, the blood was everywhere. Congress finally approved a $700 billion bailout for troubled mortgages, but the tortuous path of the legislation robbed it of impact — stocks sold off after passage in a classic case of "buy the rumor, sell the fact." To read Bryce Knorr's complete weekly corn review, click HERE.