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Paragon Commentary

Futures File: Soybeans & North Korea

Jul 07, 2017

North Korea Sends Rocket Sky High

As Americans celebrated the Fourth of July with rockets glaring red, so too did Kim Jong-un’s regime in North Korea.

On Tuesday, North Korea test fired an intercontinental ballistic missile that experts believe could reach Hawaii or Alaska, putting American cities at risk for the first time. The test stood as a clear threat to the United States, and U.S. officials vowed a strong reaction.

Despite the increased nuclear threat, commodity markets didn’t react. Crude oil and gold typically rally in times of trouble, but both markets dropped this week. Oil slid beneath $44 per barrel on Friday, while gold dropped to $1207 per ounce, the lowest price in almost four months.

Commodities’ muted response likely signals a strong belief that the U.S. response will be diplomatic or economic, rather than a military operation. Global leaders are meeting this weekend in Germany for the G-20 summit, where North Korea will certainly be a pressing topic.


Soy Soars to New High

Soybean prices exploded to a three-month high this week, nearing $10.00 per bushel on Friday morning. The market already had momentum from a USDA report showing that fewer soybean acres were planted this spring than previously thought, and weather forecasts helped boost prices further.

Hot and dry weather over the next two weeks could hurt the growing bean crop, which has led analysts to expect this year’s crop yields to be nearly 8% lower than last year’s record-breaking 52.1 bushels per acre.

Despite these bullish-sounding factors, this year’s U.S. crop could still be one of the largest on record, while South America is harvesting a large crop itself. Meanwhile, Chinese demand has shown signs of slowing down, all of which could eventually sink the soy market.

Fearing a pullback, many farmers are taking advantage of the current rally by using put option contracts, which lock in a price floor but allow for upside profit potential if the market keeps rallying.

Alongside the soybean rally, wheat prices continued exploding this week, touching new multiyear highs on drought concerns.

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