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Paragon Commentary

Futures File: Corn, Cocoa & Gold

Jul 02, 2020

Corn Rockets Higher

Corn prices put on a dazzling display this week, exploding to three-month highs on the heels of a USDA report.

On Tuesday, the U.S. Department of Agriculture updated its estimates of this year’s planted acreage and shocked markets with a drastic cut of 5 million corn acres.

This news created fireworks across the grain markets, with December corn futures topping $3.60 per bushel. Wheat and soybeans went along for the ride, with Chicago wheat nearing $5.00 and November soybeans topping $9.00.

Despite the slashed corn acres, this year’s plantings will likely outpace 2019, and crop conditions are stellar so far, suggesting a bin-busting crop. If weather stays good, corn supplies could exceed expectations and send prices careening lower again.

As a result, farmers are facing an age-old conundrum of determining when and how to sell this year’s crop that is still growing in the field. If they sell too early, they could miss out on higher prices or commit bushels they may not grow, but if they wait too long, prices could be sharply lower at harvest time.

 

Bitter Cocoa Market

Cocoa prices are melting lower as resurgent COVID-19 cases threaten to undercut chocolate demand. Worldwide, chocolate is largely seen as a luxury, with consumption rising and falling with economic conditions. The worsening wave of cases in the U.S., China, and elsewhere has cocoa traders worried that coronavirus concerns will linger.

COVID is not expected to drastically affect supplies by interrupting cocoa harvest or processing. As a result, markets are projecting a cocoa glut, sending prices for September cocoa futures toward $2150 per metric ton, near a one-year low.

 

Gold Shines Brighter

Gold leapt over $1,800 per ounce this week for the first time since 2011, a sign that investors are continuing to chase the security of precious metals.

Alongside concerns about economic slowdowns, markets are also nervous about a massive increase in global debt as governments spend wildly to combat the virus and economic pains from shutdowns.

Central governments are borrowing or printing money to pay for aid packages, which could lead to inflation if they are unable to raise taxes or cut future spending to pay for today’s emergencies. In an environment of runaway inflation, hard assets like gold are likely to outshine other investments, leading to investor demand now.

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