Chicago agricultural products drop as market bets on China interest rate hike

14:45, November 13, 2010      

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Chicago agricultural products concluded the week with a sharp drop as market expected that China will raise interest rates soon. Soybeans fell from a 26-month high, corn suffered the sixth straight drop and wheat declined the most in three months.

The most active corn contract for December delivery dropped 30 cents, or 5.3 percent, to 5.48 U.S. dollars per bushel. December wheat declined 34.6 cents, or 4.9 percent, to 6.6915 dollars per bushel. January soybean shed 70 cents, or 5.2 percent, to 12.69 dollars per bushel.

Market traders noted that the speculation of China's continuing tightening of its monetary policy hammered commodity markets, as China's interest rate rates hike would increase the chances for slowdown in demand.

China's October's CPI, a major gauge of inflation, hiked 4.4 percent from the same period of last year, triggering wide speculation that the central bank will lift the interest rate.

China's central bank on Nov. 10 decided to raise the reserve requirement ratio by 0.5 percentage points as of Nov. 16, a measure to tight money supply in the banking system. Besides, it lifted the yield in the 1-year central bank bill, a beacon of its benchmark 1-year deposit interest rate.

A trader noted that China will endeavor to take a more aggressive stance to cool inflation and push speculative money out of commodities. China is the world's biggest consumer of soybeans and wheat, and the second largest user of corn.

As a result, all the three major agricultural products listed on Chicago exchange, or corn, wheat and soybean, suffered a sharp drop on Friday.

Aside from the above negative force, the wheat market was also weighed on by the upcoming rainfall in the U.S. Great Plains, which will improve the prospects of winter wheat crop.

As much as 2 inches (5 centimeters) of rain fell on Thursday in parts of Texas, Oklahoma and central Kansas, the largest winter- wheat state, according to QT Weather. Parts of those states have received 25 percent of normal rainfall in the past 30 days.

Source: Xinhua


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