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Paragon Commentary

Futures File: Corn, Metals & Coffee

Aug 07, 2020

Corn in the Dirt

Corn prices tumbled to new contract lows this week, trading down to $3.20 per bushel. Values are dropping as the crop looks increasingly healthy and is poised to produce over 180 bushels per acre, a new record yield.

As the crop size grows, demand is falling behind, especially from ethanol producers. Nearly 40% of U.S. corn is converted into ethanol fuel, but automotive demand has been weak all year due to the coronavirus shutdowns. This led to a glut of ethanol, leaving ethanol producer demand lower than pre-pandemic levels.

Worse yet, despite massive buys from China last week, U.S. corn exports are more than 10% below last year’s sales, a sign that this year’s large crop is not finding willing buyers even at these low prices.

 

Race for Gold & Silver

Investors continued chasing precious metals higher this week, pushing gold and silver to new highs. Silver neared $30 per ounce on Friday, while gold pushed over $2060, an all-time high.

The two metals are outpacing nearly all other investments, especially silver, which rose by 50% in less than a month.

Fears that hyperinflation could accompany paper currency devaluations caused by our new burgeoning federal debt are diverting a portion of “safe-haven money” from stocks, bonds, and money funds which were favored until COVID-19 transformed our economy. Friday morning brought a large downward correction in silver as many cashed in huge profits and hoped for a chance to re-buy at less frothy prices.

 

Robust Coffee Demand

Coffee prices perked higher this week, nearing the highest level of the year.

The rally is being led by the robusta variety of coffee, which is most commonly used in instant coffees. Robusta beans are grown primarily in Brazil and Vietnam; both countries are projecting smaller crops this year. Demand for robusta beans has been rising as consumers worldwide are staying home, brewing cheaper coffee blends, rather than buying high-priced drinks in cafes.

As robusta prices rise, they pull the higher-quality arabica beans along as well, as the price gap between the varieties narrows. December arabica coffee futures traded for $1.15 per pound on Friday.

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