Commodities Soar as Crop Forecasts Cut, U.S. May Buy More Debt

Commodity prices surged to the highest level in almost two years after the U.S. government cut its crop-supply forecasts and the dollar slumped on speculation the Federal Reserve will buy more debt to revive the economy.

The Reuters/Jefferies CRB Index of 19 raw materials jumped as much as 2.7 percent to 295.17, the highest level since Oct. 15, 2008. Every price advanced. Wheat, soybeans and corn led the gains, each jumping the most allowed by the Chicago Board of Trade. Copper climbed to a 27-month high, and crude oil topped $83 a barrel.

Since the end of May, the CRB index has rallied 16 percent, and the dollar slid 11 percent against a basket of six major currencies, as the U.S. sought to inject more cash into the economy and spur growth. Today, the greenback dropped below 82 yen for the first time in 15 years as a U.S. payrolls report showed employers cut more jobs last month than economists forecast.

“Everybody is printing more money except emerging markets, and those guys are buying commodities,” said Michael K. Smith, the president of T&K Futures & Options in Port St. Lucie, Florida. “We’re going to have an inflationary spike. This is a perfect storm for commodities going higher.”

The CRB index rose 7.81 to close at 295.11 at 5:10 p.m. New York time. This week, the gauge gained 3.3 percent, the most since April 2.

Crop Forecasts Cut

The U.S. Department of Agriculture today cut its domestic corn-crop estimate for the second time in as many months, predicting a 3.4 percent drop from last year. While farmers will collect the most soybeans ever, the total will be 2.2 percent less than forecast in September, the agency said. Global wheat inventories will be 1.8 percent less than projected last month.

“The government has shocked the grain industry with the huge cut in U.S. production,” said David Smoldt, the vice president of operations for FCStone LLC in West Des Moines. “There will be some scrambling for supplies today.”

Corn futures for December delivery rose the 30 cents, or 6 percent, to close $5.2825 a bushel. Soybean futures for November delivery soared 70 cents, or 6.6 percent, to $11.35 a bushel. Wheat futures for December delivery jumped 60 cents, or 9.1 percent, to $7.1925 a bushel.

Reduced supplies of corn may increase costs for meat companies and squeeze margins for makers of grain-based ethanol such as Valero Energy Corp., Poet LLC and Archer Daniels Midland Co.

The shares of Tyson Foods Inc., the largest chicken processor, slid $1.26, or 7.7 percent, to $15.01 in New York Stock Exchange composite trading. Earlier, they touched $14.82, an eight-month low. Smithfield Foods Inc., the biggest pork producer, fell $1.08, or 6.7 percent, to $14.97, the biggest drop in a year.

Freeport Climbs

Copper futures for December delivery increased 9.5 cents, or 2.6 percent, to close at $3.7745 a pound. Earlier, the price reached $3.8015, the highest level for a most-active contract since July 8, 2008.

Freeport-McMoRan Copper & Gold Inc., the world’s biggest publicly listed copper producer, climbed $4.11, or 4.5 percent, to $95.51. Earlier, the shares reached $95.91, the highest level since Aug. 1, 2008.

Crude-oil futures for November delivery rose 99 cents, or 1.2 percent, to $82.66 a barrel on the New York Mercantile Exchange. Earlier, the price reached $83.13.

Sugar rose to the highest price in almost eight months on concern that demand will outstrip supplies after adverse weather damaged crops in Brazil, the biggest producer.

Cotton futures jumped to a 15-year high after the USDA boosted a forecast for global demand. Textile mills will use 120.8 million bales in the year that began Aug. 1, up 0.2 percent from last month’s estimate, the USDA said.

–With assistance from Jeff Wilson, Whitney McFerron and Leslie Patton in Chicago: Patrick McKiernan, Steve Stroth

To contact the reporter on the story: Yi Tian in New York at Ytian8@bloomberg.net.

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net.