Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Metals, Soybeans & Bacon

Feb 24, 2017

Gold and Silver Streak Higher

Gold and silver continued rallying this week, reaching the highest level since early November. Prices are exploding on political uncertainty, both in the U.S. and Europe.

Some traders are concerned that President Trump’s economic policies could spark inflation, boosting demand for precious metals, which are typically seen as a safe haven against rising prices.

After Great Britain voted to leave the EU last year, other Europeans have been pushing to leave as well. In France, the far-right candidate Marie Le Pen leads in polls for the upcoming April election on a platform that calls for leaving the EU, raising protective tariffs, and tightening French borders, especially against asylum seekers.

On these concerns, gold topped $1260 per ounce, and silver soared to $18.46 per ounce on Friday.

 

Soybeans Sink

Soybean prices fell to a six-week low under $10.10 per bushel on Friday, dragged lower by USDA projections for a bean crop of 4.18 billion bushels this year, a harvest that would be the second-largest in history if it comes to fruition. Farmers are expected to plant a record 88 million acres of soybeans this year, choosing beans instead of less profitable crops like corn and wheat.

Other USDA expectations are predicting sharply smaller wheat and corn crops this year, but show that stockpiles of all three major agricultural commodities should remain ample, a factor that should keep a lid on prices.

For those farmers who have already invested money in seed, chemicals, equipment, and land, it is important that they protect their crop values as well. They typically begin this process before planting, either by forward selling, purchasing insurance, or using the futures and options markets to lock in prices.

 

Bellies get Gutted

Bacon prices collapsed this week, losing nearly 20% in value over two days. Bacon tracks an industry market known as “pork bellies” which represent the frozen cut of meat that bacon is made from.

The market is dropping after a massive run-up due to shortage concerns. Pork belly inventories are down 77% over the last year and are at the lowest in at least 60 years. This means that discounts at the store may be short-lived.

Pork belly futures were once the wildest futures market, known for treacherous swings that could make a trader wonderfully rich or bankrupt in a flash. Sadly, the market for bellies was closed in 2011, which sent belly traders to the lean hog futures market instead.

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