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How Low Can US Grains Go?
By Mr Ethanol | October 8, 2008
Alibaba News Channel:
The sell-off in grains as part of a broader flight of investment money from commodities could continue through year’s end due to the expanding credit crisis, with any global recession taking a bite out of demand.
U.S. grain prices have likely not bottomed, despite their recent slide, with the U.S. harvest getting into gear, uncertainty over demand for corn from the ethanol sector and a rising dollar that could hurt export competitiveness.
But of particular concern to traders in the grain market is the path investment money from investors like index funds will follow.
“There are estimates that by the end of the year about 30 percent of the index funds’ positions are going to get liquidated,” said grains analyst Charlie Sernatinger of Fortis Clearing Americas in Chicago.
“That is the big question mark in the market. In order to get some stabilization in prices, you are going to need some clarification that index funds are not going to get out of their big long positions,” he added.
Index funds, along with other investment vehicles, raised their presence in the grain and other commodities markets in recent years as they shifted their focus away from the equities market in search of better returns.
Investment funds, which typically use debt to build large positions in these markets, are now actively deleveraging by getting out of commodities markets to reduce financial risk amid signs that the credit crisis is spreading globally.
There have been few signs that a $700 billion plan to buy up toxic mortgage securities at the heart of the credit crunch has boosted confidence in the economy, and fears of a global recession are growing.
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