& Reuters New Service
Commodities can seem as safe as houses to many investors in turbulent times.
But unfortunately houses right now seem like terrible investments with the crisis in the “subprime” mortgage market in the United States blamed for weakness in U.S. commodity markets.
Many market reports last week fingered the subprime crisis for the tepid reaction to the Aug. 10 U.S. Department of Agriculture report, which found extremely tight stocks for soybeans and wheat.
Wheat and soybean prices reacted little to the report, which said the U.S. wheat stockpile is likely to be the smallest in 12 years at the end of the year while soybean stocks at the end of 2007-08 will be less than half of what they are now. That could set the stage for a rally this winter or spring, some analysts think.
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“If anything else goes wrong in the rest of the world – there’s still time for that – wheat and soybeans could go a lot higher,” said American analyst John Schnittker.
“There has to be a huge adjustment in acreage next year, back to soybeans from corn.”
Pulled out of market
Analysts have blamed the subprime crisis for hedge funds and other investments funds pulling out of the commodity market and weakening prices.
Subprime mortgages are made with people on properties or with conditions that wouldn’t normally qualify. In the U.S., millions of subprime mortgages were made since 2003, and many are now in default.
Interest rates have doubled since many mortgagees borrowed money and are now being reset, causing huge numbers of refinancings and repossessions.
Dozens of mortgage lenders have gone bankrupt, and many investment companies that resold the mortgage debt are in financial trouble.
That has caused shares in financial companies in the U.S. to drop, jacked up borrowing costs for all businesses and created crises in some hedge funds that bet the wrong way on the markets, or that need huge amounts of cheap money to operate.
Analysts are saying some investment funds are cashing out their commodity positions, often at a profit, in order to reduce their risk and make up for losses in other parts of the economy.
Winnipeg futures have fallen slightly since the turmoil began in the U.S. equity markets. The Winnipeg Commodity Exchange’s western barley contract has fallen from a peak of $180 per tonne in mid July to $167 Aug. 13. Canola has eased from a peak of $420 to $410 Aug. 13.
The USDA report also found a huge crop of corn coming, but the market had already anticipated this finding and moved little in response to the report.
