Commodities Futures and Options Brokerage

Paragon Commentary

Futures File: Wheat & Interest Rates Up; Gasoline Down

Jun 19, 2017

Wheat Springs Higher

Hard red spring wheat futures leapt to the highest price since 2014 as farmers are grappling with exceptionally dry conditions in the northern United States. A drought in North Dakota and nearby states has sapped growing plants of moisture, leaving the crop in the worst condition in almost 30 years. According to the USDA, only 45% of the hard red spring wheat crop is in good or excellent condition. This stress could ultimately lead to lower yields and a sharply lower harvest this fall.

Hard red spring wheat is a high-protein variety used in bread production. For commodity traders, it is known as Minneapolis wheat, as the variety was originally traded at the Minneapolis Grain Exchange. The market typically carries a significant premium over Kansas City wheat (hard red winter) and Chicago wheat (soft red winter) due to its higher protein content.

As of midday Friday, Minneapolis wheat traded for $6.41 per bushel, well above Kansas City ($4.73) and Chicago ($4.64) wheat futures.

 

Gasoline Market Tanks

Gasoline prices sank to a seven-month low this week as U.S. gasoline inventories continue to climb. National stockpiles rose by 1.79 million barrels last week, as U.S. drivers are burning less fuel. Meanwhile, domestic crude oil production continues to stay strong, and refineries are processing oil into gasoline, diesel fuel, and other products, resulting in a glut of the refined products ahead of the summer driving season.

This pattern may not continue, as falling demand has knocked oil prices to a seven-month low as well, which may discourage drilling in the coming months.

 

Fed Raises Rates Again

In a widely-anticipated move, the U.S. Federal Reserve raised interest rates this week, moving the benchmark rate over 1% for the first time since 2008.

The Fed has been raising rates to return interest rates to a more normal level and head off fears of inflation. Additionally, the Fed announced that it was going to begin unwinding its stimulus measures implemented after the financial crisis that began in 2008.

These moves show signs that the Fed is confident in the U.S. economy’s strength, but these measures may also affect markets. After the most recent announcement, the U.S. dollar rose in value and gold fell to $1250 per ounce.

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