Commodities slump for 2nd day on big crude drop

NEW YORK - Commodities fell sharply for a second day Tuesday after another big drop in crude prices suggested that a global economic slowdown is curbing the world's thirst for for energy and raw materials.

Gold, silver, copper, corn and most other agriculture futures sank as crude tumbled nearly $6 a barrel, bringing oil prices down almost $10 this week. A stronger dollar also rendered commodities more expensive to overseas buyers, curbing some demand.

After a year of explosive growth in the commodities sector, analysts say signs are emerging that the boom may be slowing down: The battered dollar is showing signs of life, soaring costs for energy and raw materials are slowing growth in Asia and the Middle East and U.S. legislators are weighing whether to restrict investor inflows into the commodities sector.

"The macroeconomic backdrop suggests that the bloom may be off the rose in commodities," said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago.

Still, he cautioned that a host of unexpected factors could send prices soaring again. A major hurricane hitting the U.S., for example, could damage infrastructure and push oil prices toward $150 a barrel and beyond. And more bad weather in the flooded Midwest could deal another blow corn and soybean crops and send world food prices skyrocketing.

"Those are still very big unknowns that could bring all those markets roaring back," Feltes said. "But for today, the burden of proof is on the shoulders of the bulls and the bears are in the drivers' seat."

In agriculture markets, grain prices move sharply lower Tuesday on crude's drop and forecasts for more favorable weather in the Midwest. Warm, dry conditions have helped dry out waterlogged corn and soybean crops, raising hopes for a good U.S. yield.

Corn for December delivery fell the maximum 45-cent daily limit to $7.02 a bushel on the Chicago Board of Trade, before gaining slightly to settle at $7.225 a bushel, down 24.5 cents. On Monday, the contract fell the daily limit to settle at $7.47.

November soybeans fell 31.5 cents to settle at $15.295 a bushel on the CBOT, while September wheat gained half a penny to settle at $8.365 a bushel.

Also pressuring prices Tuesday were concerns over a meeting this week by the U.S. House Agriculture Committee on whether the Commodities Futures Trading Commission is properly regulating the futures market. One idea being floated by legislators is restricting pension funds from investing in commodities — a move that would sharply reduce liquidity in commodities markets.

"If Congress makes legislation to limit (funds') participation, you're going to take away a large number of buyers from this market," said Tom Pawlicki, commodities analyst with MF Global Research.

Meanwhile, crude continued its downward slide as traders cashed in profits from oil's recent rally.

A barrel of light, sweet crude for August delivery fell as much as $6.23 in morning trading on the New York Mercantile Exchange, and later settled $5.33 lower at $136.04 a barrel.

The losses at least temporarily wiped out previous gains that sent prices soaring past $145 in a series of record-breaking sessions before Independence Day. Still, analysts said the correction could quickly shift coarse and swing prices higher again.

Other energy futures also traded lower. August gasoline futures lost 11.98 cents to settle at $3.3631 a gallon on the Nymex, while August heating oil futures lost 14.94 cents to settle at $3.8202 a gallon.

Crude's drop also weighed on precious metals, with gold for August delivery falling $5.50 to settle at $923.30 an ounce on the Nymex.

September silver added 3.5 cents to settle at $17.955 an ounce on the Nymex, but prices later fell in aftermarket trading to $17.895, down 2.5 cents. September copper dropped 15.25 cents to settle at $3.6965 a pound.

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