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Reuters Wednesday January 16 2008

(Updates with closing prices, adds analyst quote, byline)
By Christine Stebbins

CHICAGO, Jan 16 (Reuters) - U.S. soybean, corn and wheat futures plunged on Wednesday amid a broad-based sell-off in commodities spurred by recession fears, traders said.
Additionally, the commodities were poised for a setback after a series of record highs as Wall Street money has been flowing into the grains, metals and energy markets as a hedge against inflation.

The biggest drop in the Chicago Board of Trade markets was in soybeans, down more than 3 percent when the March contract slipped nearly the 50-cent trading limit.
Fueling the recession talk was a move by China, the world’s top soy buyer, to tighten controls on food prices. With consumer inflation in the world’s most populous country at an 11-year high at 6.9 percent, the government ruled that food producers must obtain government permission to raise prices.

“Any time you have a major world importer or exporter putting on price controls, it’s a big bearish factor,” a Chicago trader said.

CBOT March soybeans closed 24-1/2 cents lower at $12.77 a bushel, March soybean oil ended 0.58 cent weaker at 52.73 cents per lb and March soymeal fell $9.20 per ton to $346.90.
The grains also slid. March wheat fell the 30-cent limit early to $9.02 a bushel but recovered to close just 5-1/2 cent lower at $9.26-1/2. The new-crop months from July forward ended steady to higher on worries about the size of the 2008 U.S. winter wheat crop.

March corn ended 6-1/2 cents lower at $5.02-1/2 a bushel.
“We’ve just got the markets all pumped up,” said analyst Roy Huckabay with The Linn Group, a Chicago trade house. “The break started in gold and crude oil ... everybody is talking about the freight rates being down — indicative of less demand.”

The New York gold market tumbled more than $20 an ounce to $882 and crude oil slipped below $90 a barrel for the first time since mid-December before closing about a $1 lower at $90.84 in the spot month.

"Fueling the recession talk was a move by China, the world’s top soy buyer, to tighten controls on food prices. With consumer inflation in the world’s most populous country at an 11-year high at 6.9 percent, the government ruled that food producers must obtain government permission to raise prices."

Good news. Anytime that they want to starve their own citizens, that means cheaper food for us! /s

The Baltic bulk dry shipping index (tracking costs to ship raw materials like iron ore, fuel, etc.) has been plummeting since mid-November. Off about 30% of peak.

This is significant as the index is the one true indicator of demand for products as it reflects the movement of ships and raw materials for manufacturing on a global scale. It’s basically a bid system for a finite, inelastic inventory of international cargo holds. Demand is diving, indicating that less freight is on the move in all regards.

China is cutting back on raw materials and with the cutback will come a significant reduction in its energy demands. I see this as the best confirmation of a significant economic slowdown, if not a presently active recession. At best, some serious moderation in commodities as demand is showing serious slackening and speculators will be racing to clear positions and take profit. At worst, this condition will slide us rapidly into a hard recession.