Commodities slump for 2nd day on big crude drop

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.