Grains, oil prices sink as traders eye the weather
By MADLEN READ, AP Business Writer
Friday, August 29, 2008 3:39 PM CDT
NEW YORK 8/29/08 - Grains and fuel prices finished an erratic trading session lower Thursday as commodities traders kept a close watch on the weather near the Gulf Coast and in the Midwest.
Consumers aren’t in for a break in gasoline and grocery costs, however. Refineries have been ratcheting up wholesale gasoline prices ahead of the Labor Day weekend, and meanwhile, drops in the price of agricultural futures usually take a long time to work through the system to retail prices.
Furthermore, the markets have seen relatively thin volumes ahead of the holiday, which can make trading volatile; few analysts are ruling out the possibility of another spike in oil prices if Tropical Storm Gustav ends up slamming into the Gulf Coast.
On Thursday, though, traders were in selling mode.
Forecasts for rain in Minnesota, Iowa and Northern Illinois drove down grains prices, said Vic Lespinasse of Grainanalyst.com, who works on the floor of the Chicago Board of Trade. While U.S. crops were hurt by floods in earlier in the season, they are now in need of rain again.
The agriculture markets were also following the movements of the energy markets — when oil prices turned lower on news of a rise in U.S. natural gas storage, Lespinasse said, local traders, funds and commission houses alike launched another wave of grain selling.
Wheat for December delivery dropped 14.75 cents to settle at $8.11 a bushel; December corn slipped 8.25 cents to settle at $5.8775 a bushel; and November soybeans sank 24 cents to settle at $13.24 a bushel.
Oil has been volatile as Gustav approaches the Gulf of Mexico. Though traders are concerned about the storm disrupting the oil facilities there, many are also betting that if the storm strikes the Gulf Coast, fuel demand will drop and the government will release some of its oil in reserve.
A storm is also a double-edged sword for grain prices. A hurricane in the Gulf could drive up oil prices and other commodities along with them, but “the remnants of the hurricane could bring a lot of rain into the Midwest, and that could be bearish for the grains,” Lespinasse said.
Energy prices initially popped higher on Thursday, but then reversed course.
Light, sweet crude for October delivery fell $2.56 to settle at $115.59 a barrel on the New York Mercantile Exchange, after rising as high as $120.50.
Heating oil futures fell 7.28 cents to finish at $3.1889 a gallon, while gasoline futures dropped 8.22 cents to close at $2.985 a gallon.
Natural gas futures, meanwhile, fell 56.8 cents — more than 6 percent — to end at $8.04 per 1,000 cubic feet on Nymex. The Energy Department said Thursday that natural gas in U.S. storage rose last week to 2.6 percent above the five-year average for this time of year.
Meanwhile, precious metals stayed higher in Thursday’s trading, even as the dollar strengthened against such major currencies as the euro, pound and yen. Metals and other commodities are often bought as a hedge against a weakening dollar.
A note from a UBS analyst encouraging investors to buy gold helped lift the metal, as did escalating tension between Russia and the West over Russia’s attacks on Georgia. France said the European Union was considering imposing sanctions against Russia.
Gold is often viewed as a safe-haven investment during an uncertain political climate.
Gold futures for December delivery rose $3.20 to settle at $837.20 an ounce on the New York Mercantile Exchange.
December silver rose 13.7 cents to settle at $13.705 an ounce on the Nymex.
Copper prices declined on the Nymex after the industrial metal lost ground on the London Metals Exchange. The LME on Thursday reported an increase in copper inventories to a six-month high.
December copper dipped 4.45 cents to settle at $3.4005 a pound on the Nymex.
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