Corn Falls on Concern U.S. Economic Slump to Reduce Demand

By Jeff Wilson

Jan. 30 (Bloomberg) -- Corn dropped on concern an interest- rate cut by the U.S. Federal Reserve won't keep the economy out of a recession, reducing global demand for food, fuel and animal feed.

U.S. economic growth slowed to an annual rate of 0.6 percent in the fourth quarter, half the rate forecast, Commerce Department data showed today. The Federal Open Market Committee cut its benchmark interest rate by half a percentage point to 3 percent following the Jan. 22 emergency rate reduction, the fastest 1.25 percent easing of monetary policy since 1990.

``A global slowdown will have an impact on demand,'' said Sid Love, a grain analyst for Kropf and Love Consulting in Overland Park, Kansas. ``Prices are likely to hold firm into February'' the month that federal crop insurance rates are set based on average futures prices in Chicago, Love said.

Corn futures for March delivery fell 2.5 cents, or 0.5 percent, to $4.985 a bushel on the Chicago Board of Trade. The price still has climbed 9.4 percent in January, heading for the fifth straight monthly gain.

The most-active contract reached a record $5.1925 on Jan. 15. Futures climbed 17 percent last year on record demand for grain used to make ethanol and feed livestock.

Corn also fell on speculation import demand from Mexico, the second-biggest buyer of the crop, will decline.

Mexican economic growth will slow to 2.8 percent in 2008, the lowest in three years, from an estimated 3.2 percent in 2007, the Finance Ministry said today. The government had forecast 3.7 percent expansion.

Near Recession

The U.S. economy edged closer to recession in the fourth quarter as home construction fell the most in 26 years and Americans cut back on spending, government data showed.

``If these recession fears are realized, we could see a slowdown in global demand,'' said Marty Foreman, a grain analyst for Doane Agricultural Services Co. in St. Louis. ``A slowdown doesn't change things immediately, but for now, we can say prices are high enough.''

Corn prices also fell on speculation U.S.-produced ethanol may face increased competition from Brazilian supplies, which are made from sugar, said Chad Henderson, a market analyst for Prime-Ag Consulting Inc. in Brookfield, Wisconsin.

Ethanol import tariffs that have ``helped protect'' U.S. ethanol producers will be addressed in the 2009 budget set for release Feb. 4, Energy Secretary Samuel Bodman said yesterday. The U.S. industry ``is pretty close to being able to stand on its own,'' Bodman said after giving a speech in Washington.

``The elimination of the ethanol import tariff could change the outlook for corn demand,'' Henderson said. ``Imports could reduce demand for Midwestern ethanol'' on the East Coast and West Coast, where imports would be cheaper, Henderson said.

Corn is the biggest U.S. crop, valued at a record $33.8 billion in 2006, followed by soybeans at $19.7 billion, government figures show.