Friday, August 6, 2010

Wheat surges as drought worsens; oil, metals fall

NEW YORK: U.S. wheat futures soared more than 8 percent on Thursday, Aug 5 to highs unseen in two years, after Russia said it would halt grain exports while it faces its worst drought on record.

Soybeans and corn also rose, pulled higher by wheat's surge. But other commodities fell as disappointing U.S. economic data on jobs and retail sales cast doubt on demand prospects. Oil and industrial metals fell, but gold rose as investors sought safety in the precious metal.

Global commodity sector benchmark, the RJ/CRB index of 19 commodities, fell 0.47 percent to 277.67, as commodity market trade ended.

The benchmark September wheat contract on the Chicago Board of Trade jumped 8.3 percent, its biggest daily percentage gain in three weeks. Wheat has soared 85 percent since the low of June 9, surging as a drought has devastated Russia.

Russian Prime Minister Vladimir Putin signed an order banning grain and flour exports from Aug. 15 to Dec. 31, with a spokesman saying this would apply to contracts that had been already signed.

Without shipments from the world's No. 3 wheat exporter, traders sent grain prices up by daily maximum allowed.

"Putin's announcement has everyone in a panic. It's money chasing money, and who knows how high we could go," said Paul Haugens, vice-president for Newedge USA.

Investors in most other commodities were setting up for the July U.S. employment report due out on Friday at 8:30 a.m. EDT(1230 GMT). A Reuters poll produced an average forecast for a decline of 65,000 in non-farm payrolls, but a gain of 90,000 private jobs in July.

On Thursday, data showed first-time filings for U.S. unemployment benefits jumped unexpectedly last week, giving investors reason to'' worry about demand prospects ahead of Friday's jobs report.

"Whatever happens with tomorrow's July numbers, you just have to keep in mind that you need approximately 125,000 jobs a month just to keep up with new entrants into the job market," said Scott Wren, senior equity strategist at Wells Fargo Advisors in St. Louis.

Disappointing monthly sales at U.S. retailers combined with higher jobless claims to send oil prices lower, feeding doubts about the outlook for energy demand a day after a government inventory report showed rising fuel stockpiles.

U.S. September crude futures fell 46 cents to settle at $82.01 a barrel, in the second day of losses.

Copper prices fell 1.5 percent after the jump in weekly U.S. jobless claims prompted some cautious investors to cash in ahead of Friday's labor market data.

"With the bump in jobless claims, there is a lot of nervousness in front of tomorrow's monthly unemployment numbers," said Sterling Smith, an analyst for Country Hedging Inc in St. Paul, Minnesota.

"A tepid recovery with a lack of jobs means lower demand for copper," he added.

Investors bought gold for its safe haven appeal and drove prices higher for a seventh consecutive session. It reached levels over $1,200 for awile on concern about the economy coupled with inflation worries related to the grain price rise, but settled just below that threshold.

"Concern over the suspension of grain export from Russia and escalating grain prices are triggering some concerns, which are feeding into gold," said James Steel, chief commodity analyst at HSBC in New York. - Reuters

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