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Paragon Commentary

Futures File: Copper, Lumber, USDA & Hogs

Feb 08, 2019

Building Materials on the Rise

Construction commodities like copper and lumber are climbing, showing renewed faith in the U.S. housing market and Chinese economy. Both copper and lumber are near a six-month high after bottoming out with stock markets in late December.

As the U.S. and China appear to be approaching a trade deal, both nations’ economies could gain strength, leading to an expansion of construction on both sides of the Pacific. As of midday Friday, March lumber futures traded for $420 per thousand board feet, and March copper garnered $2.82 per pound.

Despite the recent rallies, both markets are still down sharply from the highs of last year, a sign that prices have room to run if economic conditions improve further.

 

USDA Back in Business

After the monthlong government shutdown, the U.S. Department of Agriculture released two months’ worth of crop data. The much-anticipated crop report showed that last fall’s corn and soybean harvests were smaller than previously thought and that supplies of the two commodities were also tighter.

Despite the adjustments, the U.S. still has ample stockpiles and will need rising demand to cut into the glut, especially of soybeans. Both markets rallied briefly on the announcement but were trading near unchanged by midday Friday at $9.11 and $3.74 per bushel, respectively.

 

Hog Market Chopped

Pork prices are dropping, with many futures contracts reaching toward new low levels, a sign of renewed pessimism in the near term. U.S. pork production is at a record level, which is overwhelming the market with meat.

Traders had expected that the ongoing African swine fever outbreak in China would force the world’s largest pig producer and consumer to start buying U.S. pork, but that demand has not appeared yet.

Ongoing trade disputes are still discouraging full-scale Chinese buying, and any further spread of the disease could cause import demand to fall further. Chinese farmers may be forced to cull their hog herds, which would create a short-term glut of meat. Longer-term, China could find itself with a pork shortage, boosting demand, but that may not appear until next summer.

As a result, U.S. pork futures are dropping now, but prices for next summer are much higher. For example, February hogs are worth 55 cents per pound, but contracts for June 2020 are worth nearly 80 cents per pound.

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