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Paragon Commentary

Futures File: NAFTA, USDA & Gold

Jan 12, 2018

NAFTA Changes Loom over Markets

Markets were rattled this week after news broke that Canada expected President Trump to pull out of the North American Free Trade Agreement (NAFTA). The deal, which has been in place since 1994, lowered trade barriers between the U.S., Canada, and Mexico and has boosted U.S. exporters and made goods cheaper for consumers. However, these benefits came at the cost of increased competition for domestic American industries, especially manufacturing.

This has lead President Trump to make retooling NAFTA a cornerstone of his trade policy, which he reiterated again this week. These fears knocked the Canadian dollar sharply lower on Wednesday, falling near 79.5 cents per U.S. dollar.

Meanwhile, lumber futures rose to an all-time-high. The U.S. is heavily dependent on lumber imports from Canada, and a new NAFTA deal could raise tariffs, and thereby lumber prices.

If the deal is renegotiated, the U.S. agricultural sector potentially has more to lose than any other group, as exports to Canada and Mexico have become a major foundation of the agricultural economy. However, President Trump pledged to support farmers and score “even more victories for the American farmer and the American rancher,” in new negotiations, which has kept agricultural markets soothed for the time being.


Gold and Platinum Shine

Gold and platinum exploded to a four-month high on Friday, topping $1330 and $1000 an ounce, respectively. Prices have risen for five consecutive weeks as buyers flow back into the markets. This move has also buoyed palladium and silver, making this a stunning week for precious metal investors.

A major factor in this bull market has been a weakening U.S. dollar, which makes hard asset investments more attractive.


USDA Creams Corn and Wheat Prices

On Friday, the U.S. Department of Agriculture released a slew of data about the corn, wheat, and soybean markets. Ultimately, the reports projected larger corn and wheat supplies than expected and generally showed lower demand for the grain markets than most analysts had been anticipating.

The reports were largely disappointing to the markets, knocking corn prices to a new contract low at $3.46 per bushel. Worse yet, wheat prices in Chicago and Kansas City plunged, touching a three-week low on fears that farmers sharply increased wheat acreage when they planted this past fall.

However, soybeans rose on Friday for the first time this week on reports of a smaller soybean harvest last year and tighter supplies, trading midday near $9.53 per bushel.

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