Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Grains, Gasoline & U.S. Dollar

Jul 14, 2017

Grains Take a Nosedive

For the past two weeks, grain markets had been exploding higher on fears of hot and dry weather in the forecast, which could threaten this year’s crop yields.

But on Wednesday, the USDA stunned markets lower with a revised outlook for this year’s corn, wheat, and soybean crops, raising estimates for global stockpiles of the three major commodities. The report served as a reminder that global harvests should replace any U.S. production losses, forcing the markets quickly lower.

During the week, corn prices lost as much as 35 cents per bushel, wheat lost 50 cents, and soybeans sank by over sixty cents.

Despite the tough week, grain prices are still at profitable levels for most producers. And, if weather forecasts worsen, concerns could spark another rally, giving farmers another opportunity to lock in prices in the coming weeks.

 

Gasoline Spurts Higher

The gasoline market steered to a five-week high on Friday, as driver demand cuts into nationwide supplies, which have fallen for four weeks straight. Earlier this year, gasoline stockpiles reached an all-time high of 259 million barrels, but increasing demand has drawn inventories near 235 million barrels.

On Friday, gasoline futures exceeded $1.55 per gallon for the first time since early June. The futures price doesn’t include taxes, delivery, or other expenses, so it is much cheaper than retail prices, which stand near $2.25 nationwide.

The recent rally could run out of steam as summer driving demand peaks. Meanwhile, rising oil prices should stimulate increased production, preventing further gains in the petroleum markets as new supplies cap prices.

As of midday Friday, crude oil futures for delivery in August were worth $46.50 per barrel.

 

Dollar Down the Drain

The U.S. dollar dropped to a ten-month low on Friday, falling in value against its major trading partners.

A declining dollar is both a blessing and a curse, depending on your viewpoint. For people who are travelling or buying foreign goods, a lower dollar makes foreign prices feel higher. But, for industries that are dependent on exporting goods to foreigners, like agriculture, manufacturing, or technology companies, the lower dollar makes U.S. goods cheaper on the global market, increasing demand.

The dollar fell after the U.S. Federal Reserve indicated plans to increase interest rates only gradually, which would keep them low for years to come. This should encourage a healthy level of inflation, but would also disappoint currency investors who are shifting money towards currencies with higher interest rates.

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