Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Copper, Grains & Oil Higher

Feb 10, 2017

Copper Strikes a New High

The copper market is red-hot, nearing a two-year high on Friday at $2.77 per pound. Prices are exploding on news that the world’s largest copper mine is shut down due to a labor strike. Workers at the Chilean Escondida mine are asking for higher wages and have threatened to stop work indefinitely until their demands are met. Chile is the world’s largest copper producer, and this one mine accounts for nearly 5% of global output.

While few Americans keep copper as an investment, the red metal is everywhere in our society, as it is durable and an excellent conductor of heat and electricity. Copper is an essential component in automobiles, buildings, and electronics, so rising prices will eventually filter into everyday life.

Should President Trump succeed in his plans for increasing U.S. manufacturing and infrastructure spending, demand for the red metal, and therefore prices, could soar.

 

Grains Spike Higher

Corn, wheat, and soybean prices all rose this week, climbing on news of shrinking global supplies. A USDA report on Thursday projected tighter stockpiles for each of the commodities, driven primarily by rising demand.

For U.S. farmers, this is welcome news, as prices are beginning to return to profitable levels. This can allow producers to lock in break-even prices on the futures and options markets, a tool that many use to guarantee the financial strength of their farming operations.

As of midday Friday, the March futures contracts for corn, wheat, and soybeans stood at $3.74, $4.49, and $10.57 per bushel, respectively.

 

OPEC’s Cuts Stick

When OPEC announced a pact to reduce oil production among its thirteen member countries last November, many analysts were skeptical that the cartel would reduce oil supplies in its effort to raise prices. Typically, individual members “cheat” on agreements, keeping production high while they hope their fellow members will cut. Instead, the cartel is working together; they cut more than 90% of the agreed-upon production.

This dropped global oil output by nearly a million barrels per day last month. Additionally, the International Energy Agency is projecting rising oil demand to rise by 1.4 million barrels per day this year.

Petroleum markets jumped on these assessments, pushing near a one-month high on Friday at $54.10 per barrel.

Despite the supply shakeup, global oil stockpiles stand near 3 billion barrels, so it will still take larger shifts or a very long time for these changes to create a shortage.

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