naked capitalism

Commodity prices are falling sharply after many indexes hit new records yesterday. The cause was the belated realization that growth will be falling, easing demand for raw materials.

Most observers believe the long-term outlook for commodity prices is strong, but the market looked badly overbought of late.

From Bloomberg:

Commodities plunged the most in almost six weeks, as oil, gold and corn fell from record highs, on renewed concern that a slowing U.S. economy will curb demand for raw materials.

The UBS Bloomberg Constant Maturity Commodity Index of 26 futures contracts fell 25.2792, or 1.6 percent, to 1,512.032 at 1 p.m. in New York. A close at that price would be the biggest decline since Jan. 23, halting a rally that sent the index up 20 percent this year and to a record high on Feb. 29.

Demand for everything from gasoline to copper to food may slow as inflation accelerates, loan defaults rise and the U.S. housing market deteriorates, said William O’Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. “Further declines in house prices are likely,” Federal Reserve Chairman Ben S. Bernanke said today.

“If the U.S. continues to slow, it’s not going to bode well for the supply and demand picture of these commodities,” O’Neill said. “Every time Bernanke speaks, the negativity about the U.S. economy comes forward.”….

Commodities have surged this year, beating gains in stocks and bonds, as a slumping dollar and lower interest rates sparked demand for a hedge against inflation. U.S. consumer prices rose 4.1 percent last year, the fastest pace since 1990. The Fed has cut interest rates five times since September to avoid a recession, and speculators say more reductions are likely.

Before today, the UBS Bloomberg index gained 20 percent this year. The Standard & Poor’s 500 Index has declined more than 10 percent in 2008…..

Oil, gasoline and heating oil fell from records on signs that the Organization of Petroleum Exporting Countries will leave production targets unchanged when ministers meet tomorrow.

Crude-oil futures for April delivery slipped 2.1 percent to $100.27 a barrel today on the New York Mercantile Exchange. The price touched $103.95 yesterday, the highest ever.

Gold fell as lower energy prices eroded the metal’s appeal as an inflation hedge. The metal for April delivery dropped 1.7 percent to $967.50 an ounce after reaching a record $992 yesterday.

Corn fell for the first time in four sessions on speculation that overseas demand and U.S. animal-feed consumption will slow, after prices reached a record $5.7375 a bushel yesterday. Corn futures for May delivery fell as much as 1.9 percent to $5.56 a bushel on the Chicago Board of Trade.