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Paragon Commentary

Futures File: Gasoline, Soybeans & Lumber

May 11, 2018

No Deal with Iran – Energy Markets Explode

President Trump announced on Tuesday that the U.S. was withdrawing from the multilateral nuclear accord between the U.S., Iran, Russia, China, and European allies, maintaining a campaign promise. He also announced that his administration would impose harsh sanctions on Iran, which could affect European companies who have invested heavily in Iranian businesses.

Many global leaders are anxious that losing the deal, under which Iran agreed to stop nuclear weapons development, could lead to instability in the Middle East. Reinforcing this concern, fighting immediately broke out between Iranian forces in Syria and Israeli forces in the Golan Heights on Thursday, with Iranian missiles being met with Israeli artillery strikes

Fears of larger conflicts shot energy markets higher, with crude oil approaching $72 per barrel for the first time since 2014. Higher oil prices drove gasoline and diesel prices to multiyear highs as well, rising by more than 5 cents per gallon this week.


Soybeans Tumble Despite USDA Concerns

On Thursday, the USDA updated its monthly Supply & Demand estimates, showing a much tighter supply outlook for soybeans.

The USDA is projecting much lower global soybean production than most analysts had anticipated, and expects that U.S. stockpiles could be as low as 415 million bushels at the end of next summer, compared with expectations of 535 million bushels.

This caused a brief rally in the market, but by Friday, soybeans had tumbled to a five-week low at $10.02 per bushel, driven primarily by ongoing concerns that trade disputes will hurt Chinese demand for U.S. beans.


Wood Works Higher

Lumber prices continued rattling higher this week, topping $600 per thousand board feet for the first time in history. U.S. tariffs against Canadian lumber imports, which account for one third of our lumber demand, have restricted the supply of wood coming into the U.S., while rapid new home construction is increasing demand.

Over the last three years, lumber prices have nearly tripled, rising from a mere $215 in September 2015 up to $610 on Wednesday.

Rising prices don’t just hurt homebuilders and homebuyers, as they splinter into all other wood-based products as well, raising costs for furniture, boxes, and even the paper that this article is printed on.

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