Wheat Soars Most in 20 Years on Federal Reserve’s Rate Decrease
October 30th, 2008Via: Bloomberg:
Wheat rose the most in at least 20 years on speculation the Federal Reserve and European Central Bank would cut interest rates, increasing liquidity and freeing up capital that will allow buyers to purchase U.S. supplies.
Investors bought baskets of commodities including energy, metal and grain futures on expectations the Fed would cut its benchmark lending rate. After markets closed, the central bank reduced the rate to 1 percent from 1.5 percent, which may encourage borrowing and spur overseas importers to purchase U.S. grain. Wheat dropped 24 percent this month through yesterday.
“A half-point rate cut by the Fed is factored in,” said Vince Ambrose, a trader at MF Global in Chicago. “And it doesn’t look coordinated, but the Europeans will move next week, or that’s what they’ve stated. A lot of commodities have sold off dramatically and we’re getting a bounce.”
Wheat futures for December delivery rose 47.25 cents, or 9.2 percent, to $5.6125 a bushel on the Chicago Board of Trade, the biggest percentage gain for the contract closest to expiration since June 30, 1988.
Futures still are down 58 percent from a record $13.495 a bushel on Feb. 27 after growers planted more to take advantage of prices that rose 77 percent last year.
Lowering the interest rate will make money cheaper to borrow, lessening the value of the greenback against other world currencies. The dollar fell as much as 2 percent against the yen and 2.3 percent against the euro today, increasing purchasing power for overseas buyers.
