U.S. grains drop on deep recession fears

By Naveen Thukral and Valerie Parent

PARIS/SINGAPORE (Reuters) - Chicago corn, soybeans and wheat fell between 1 and 2 percent on Thursday, extending losses on fears over the worsening global economy.

Stock markets continued to slide, with the MSCI world equity index hitting a five-and-a-half-year low, and crude oil slipped below $53 a barrel as economic data indicated a global recession could get even uglier.

"The stock market is leading the downside. Crude oil and grains are just following," said Genichiro Higaki, head of proprietary fund management team at Sumitomo Corp in Tokyo.

Chicago Board of Trade corn for delivery in Decemberfell 2.11 percent, or 8 cents, to $3.70-3/4 per bushel, while January soybeans were down 2.06 percent, or 18-1/2 cents, at $8.88-1/2 per bushel by 7:26 a.m. EST.

Corn lost 1-1/4 cents and soybeans ended 5 cents lower in overnight U.S. trade.

December wheat lost 1.47 percent, or 7.75 cents, to $5.19-1/4 per bushel after dropping 2-3/4 cents in the previous session.

Oil fell for a fifth straight session to below $53 after U.S. crude inventories climbed twice as much as expected, signaling an economic downturn is hitting hard and demand for fuel is falling. Tumbling crude oil prices have dragged along grains such as soybeans and corn because of their use in making biofuels which compete with petroleum.

Traders expect Thursday's U.S. Department weekly export sales report to show another week of lackluster trade in corn and wheat while soybean sales are likely to be relatively strong.

But analysts said a slowdown in sowing operations because of dry weather in Argentina could help sinking grain markets find a floor.

"There are reports that in South America the acreage might be reduced. Concerns over crop progress would be the main issue in the coming months, so we should find some support line for both beans and corn," Higaki said.

Concern about dry weather in Argentina, the world's No. 3 soy exporter and the top supplier of soyoil and meal, pushed U.S. soy futures higher on Monday and Hamburg-based oilseeds analysts Oil World said it was concerned about the dryness.

Wheat prices, meanwhile, remain under pressure from large global oversupply, although heavy rains threatening harvests in Australia could provide some support.

Australia's 2008/09 wheat harvest is running more than two weeks behind normal in some parts of the country because of wet weather that might cut the quality of some crops.

In morning Euronext trade, European milling wheat futures eased slightly under pressure from losses elsewhere, but traders stressed that the market was waiting to see the result of Egypt's latest tender, due this afternoon.

"It's very open," one trader said of the tender, noting that while Black Sea wheat continued to enjoy a price advantage, Egypt may choose to favor quality this time after local millers criticized recent shipments of Black Sea grain, especially Ukrainian.