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Paragon Commentary

Futures File: Wheat & Metals Higher

Dec 27, 2019

Wheat Catches Fire

Wheat exploded to a 16-month month high on Friday, with prices for the Chicago wheat contract topping $5.60 per bushel.

The market is being bolstered by potential Chinese demand. Following the trade deal, market watchers are expecting China to announce a new plan to import more wheat. Much of their purchases could come from the United States, and increased Chinese buying could account for over 15% of U.S. wheat exports in the coming years.

Adding fuel to the fire, foreign growers are seeing problems with their wheat crops. The grain is grown around the world, and competition from foreign farmers had kept prices depressed in recent years following big harvests from Argentina, Ukraine, Russia, and Australia. Now, each of these major competitors is fearing a drop in production, especially Australia, where drought conditions could cut the crop size by more than 5%.

As Chicago wheat rallies, other commodities are following along, with March corn, soybeans, and Kansas City wheat all reaching multi-month highs on Friday, trading for $3.90, $9.50, and $4.80 per bushel, respectively.

 

Metals Markets Glitter

Gold and silver bulls had a good Christmas, with both metals leaping higher over the holiday. Silver topped $18 per ounce, while gold neared $1520 per ounce on Friday morning, both near a two-month high.

Gold and silver are gaining favor with investors who are increasingly wary of stock markets that are at all-time high levels. All three major U.S. stock index futures contracts hit record highs on Friday, which prompted more hand-wringing from fearful investors who think that a downward correction is overdue.

Political turmoil in Washington is also boosting the metals, as the ongoing impeachment process could stir more uncertainty and help vault prices higher.

While gold and silver had a great 2019, with each rising over 15%, the biggest winner was palladium, which rose over 50% during the year.

Palladium is primarily used to clean up automobile exhaust in catalytic convertors, and increasing environmental concerns globally are boosting demand. The metal is also extremely rare and produced in only a few countries, leaving the supply at risk. Power outages in South Africa, the world’s second-largest palladium producer, sliced output recently, helping to fuel the rally. As of midday Friday, March palladium futures were worth $1880 per ounce.

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