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Paragon Commentary

Futures File: Natural Gas, British Pound, Soybeans

Nov 16, 2018

Volatility Rocks Natural Gas

After last week’s flare-up in prices, natural gas continued exploding and reached a four-year high on Wednesday.

Fears of cold weather and smaller supplies sparked the rally, but panic buying drove the market to its top near $4.93 per million British thermal units, a 50% gain in just 8 trading days.

On Thursday, a weekly U.S. government supply estimate showed that inventories continued to climb last week, which sent the market crashing back to earth by over $1.00, the biggest loss in 15 years.

Wild action continued through the end of the week, as gas rebounded by over 20 cents on Friday, leaving traders breathless.

In the days ahead, the market will be closely watching weather forecasts; if the cold weather melts away, high natural gas prices could as well.

 

Brexit Woes Weigh on Pound

The British pound tumbled this week as the messy public breakup between the United Kingdom and European Union continued. After voting to leave the E.U. in 2016, the British have been negotiating amongst themselves and with the E.U. but have been unable to find a solution that satisfies all parties.

British Prime Minister Theresa May announced her 585-page plan for the split this week, which was met with criticism from all sides. Pro-Brexit politicians are complaining that May’s plan leaves the U.K. too tied to Europe, which prompted two of her cabinet ministers to quit in protest. Meanwhile, there are increasing calls from within her Conservative party to oust her from leadership.

Anti-Brexit forces, especially in Northern Ireland and Scotland, are calling for more ongoing integration with Europe, leaving the Prime Minister little room to maneuver.

As a result, the British pound is taking a beating as uncertainty weighs on the British economy. The pound traded under $1.28 this week, near the lowest level of the year.

 

China Talks Leave Soy Anxious

Soybean prices rallied briefly this week as Chinese and U.S. officials attempted to resolve the ongoing trade war. Traders were initially excited, but ultimately decided that both sides aren’t making significant concessions, leaving beans trapped near $8.90 per bushel.

Normally, China buys nearly one-third of all U.S. soybeans, but tariffs could lead to a record bottleneck of nearly one billion bushels.

Worse yet, South American farmers are planting more soybeans next season on the hopes that they can continue selling to China at a rapid pace.

This means that U.S. soybean prices could stay under pressure long term, even if tariffs with China are removed.

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