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Paragon Commentary

Futures File: Corn, Beans, Oil & Gas

Nov 21, 2018

Abundance of Grains

U.S. corn and soybean farmers are giving thanks this week as their record-breaking harvest nears completion.

Nationwide, over 90% of this year’s corn and soybean crops have been brought in from the fields, a welcome relief as snow and poor weather conditions had slowed harvest.

This year’s soybean crop is the largest in history, and corn will likely be the second largest ever, leaving the United States awash in the commodities. Due to poor export prospects after this year’s trade wars, especially with China, much of this season’s bounty could stay in storage through next year, which is keeping prices low.

Many producers are anxiously awaiting a payment from the U.S. Department of Agriculture for their losses this year via a $12 billion program that President Trump created to offset trade losses. Unfortunately, the payments have been hard to obtain and slow to arrive, leaving many farmers short on cash after this harvest. There had been hopes for a second round of bailouts, but that is looking increasingly unlikely.

Ahead of the Thanksgiving holiday, December corn futures traded near a two-month low at $3.62 per bushel, while January soybeans fetched $8.83.

 

Oil and Natural Gas Diverge

Oil and natural gas are the United States’ two primary fuel sources, accounting for almost 60% of U.S. energy demand. However, the two fuels aren’t easily interchangeable, which can lead to wide market divergences, like the ones seen over the past few weeks.

Since early October, crude oil prices have collapsed almost 30% to a one-year low, while natural gas has exploded over 50% higher to near a four-year high.

Oil is suffering from overproduction of petroleum, both domestically and abroad, which knocked the market under $53 per barrel this week.

Meanwhile, natural gas is facing a tight supply as weeks of cold weather are cutting into supplies nationwide. Last week, American demand outpaced production by 134 billion cubic feet, far more than anticipated. This leaves stockpiles at a relatively meager 3.113 trillion cubic feet, a potentially precarious position ahead of winter.

Fears of ongoing cold weather have helped sustain natural gas prices, which stood Wednesday near $4.50 per million British thermal units. Expensive natural gas may lead to higher home heating prices this winter, so pack an extra sweater if you’re going to visit an especially frugal relative this holiday season.

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