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Paragon Commentary

Futures File: Copper, Soybeans, and Hogs

Sep 13, 2019

Copper Red Hot on China Talk

Copper prices are heating up, hitting a six-week high on Friday at $2.68 per pound.

The rally was sparked by news that China and the United States have agreed to hold off on proposed tariff increases, a measure of goodwill ahead of trade talks next month.

China is the world’s biggest consumer of copper, but the ongoing trade war has sapped its economic growth. Friendlier trade with the United States could help boost both nations’ demand for the red metal, which is used extensively in construction, automobiles, and electric appliances.

Additionally, the European Central Bank lowered interest rates again, giving Europe’s economy a shot in the arm. Lower rates from the ECB and our own Federal Reserve help make mortgages, auto loans, and credit card debt cheaper, which encourages spending and thereby copper consumption.

 

Soybeans Shoot Higher

Soybean prices got a lift this week on renewed hopes for a trade deal with China and tighter supply outlooks from the U.S. Department of Agriculture.

The monthly USDA report released Thursday morning projected that this year’s soybean crop will be slightly smaller, and demand will be higher, creating a much tighter supply situation, both domestically and globally.

Meanwhile, China has begun showing interest buying U.S. soybeans ahead of the trade talks, giving hope that the world’s largest soybean buyer could return to buying one third of U.S. soybeans, which would give prices a significant boost after the last year’s malaise.

By midday Friday, November soybeans were trading for $9.00 per bushel, up 42 cents during the week.

 

Hog Wild Rally

Hog prices exploded this week, moving the exchange-maximum “limit up” on Thursday and Friday. Prices leapt after news broke of a large Chinese purchase of U.S. pork.

China’s ongoing battle with the African Swine Fever outbreak continues to wipe out its domestic hog herds, which should be boosting demand further for U.S. meat. However, retaliatory tariffs on U.S. pork exports have stifled Chinese demand for U.S. hogs, keeping our prices low.

Prior to the explosive rally, December hog prices touched contract lows under 58 cents per pound, reflecting the general bearishness of the market.

However, the extreme negative sentiment turned around by Friday, with the market locked limit up at 68.7 cents per pound, a sign that buyers will likely pay even more on Monday.

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