Tuesday Profit Taking Sends Commodities Crashing Back to Earth

Aggressive selling came into commodities Tuesday, as funds perceptively moved to take profits as the abridged trading week resumed after Monday’s observance of the President’s Day holiday.

Corn, soybean, and wheat futures endured a theatrically dramatic sell-off following an equally captivating rally in grain futures the previous day on news of lingering instability in North Africa and throughout the Middle East.

Corn for March delivery traded limited own – the exchange limit of 30 cents – to $6.7975 a bushel at the Chicago Board of Trade. Overnight, however, corn spiked upwards of 24 cents to make new 31-month highs.

Similarly, soybeans for March delivery plummeted 60 cents Tuesday, reaching $13.0750 after the commodity briefly traded its down 70-cent limit.

Prior to Tuesday’s commodity Armageddon, grain futures had forged ahead, making fresh multi-year highs across the board as potentially serious supply and demand issues relentlessly plague the ag world.

With the smallest corn inventories in nearly four decades, farmers are growing apprehensive about their ability to produce adequate supplies of grain to meet exploding rates of consumption – largely led by China.

China’s seemingly insatiable appetite for imported grain, AgWeb reports, is only expected to climb throughout 2011. Compounding matters are the USDA estimates suggesting that global inventories for all grain will fall another 13 per cent before the next harvest.

So despite the massive sell-off witnessed in grains Tuesday, many traders and fund managers aren’t coming close to abandoning their grand expectations for commodities in the twelve months ahead.

According to Peter Sorrentino, one of the managers of $14.4 billion at Huntington Asset Advisors, corn has a stellar shot at reaching $8 by 2012 – possibly $10 if the US produces a small or damaged crop.

Sorrentino’s comments were echoed by Goldman Sachs earlier this month in the company’s forecast that soybeans will reach $16 within the next 90-days.

“People have to eat, and we have a backdrop of falling stockpiles,” Sorrentino tells Bloomberg. “Even if we have a great harvest, we’ll just be getting back to levels people can be comfortable with in terms of stockpiles. The trend is going to be for increasing prices for years to come.”

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