Futures File

September 16, 2016

Gasoline Explodes after Pipe Leak

Gasoline prices spiked this week after the Colonial Pipeline was shut down, closing off nearly 40% of the gasoline supply to 13 states running from Alabama to New York.

The leaking pipeline, which serves over 50 million Americans, may not be fully functional until next week, which is prompting fears of gasoline shortages on the East Coast.

Gasoline futures, which represent the price of the fuel at a major hub in the New York harbor, without taxes and other costs included, jumped by more than a dime per gallon this week, but some local markets may experience sharper price hikes.

Much of the surge is likely to be short-term, but it has created significant aberrations in the energy markets. Gasoline is exploding higher even as crude oil is making new lows under $43 per barrel.

 

Oats Drift Down

Oats, which are one the cheapest of all commodities traded in the U.S., have continued to decline in value since making a record high back in 2014. The long fall, which began at $6.00 per bushel, has cut oats to a low under $1.60 in recent weeks.

Global oat harvests have boosted supplies of the grain, alongside abundant corn, wheat, and soybeans. An old trader’s adage is “corn follows oats,” a warning sign that corn prices could have even farther to fall. Back in 2005, the last time that oats were at the current price, corn fetched under $2.00 per bushel, a far cry from Friday’s value of $3.38.

 

Pork Market Grinds Lower

Hog prices continued their collapse lower this week, with the most-active December hog contract falling under 49 cents per pound, the lowest price since 2009.

Additionally, market watchers are worried about hog weights; the average porker now weighs over 280 pounds, the highest in three months. In an effort to stave off selling their hogs at low prices, producers are holding onto their animals and feeding them cheap corn. In the aggregate, this tendency only serves to add more to the meat supply, which will likely keep prices under pressure.

To spark a rally, the hog market will need increased demand, either from U.S. consumers stocking up on cheap pork or foreign buyers looking to the U.S. for meat. So far, demand has been weak, leaving the hog market stuck in the mud.

For over 18 years, Walt taught his method of trading at Purdue University. His comments on the markets have been featured in USA Today and other national outlets.

Walt's weekly commentary has been published for nearly 25 years. Futures File, written on Fridays for Saturday publication, provides a brief summary of commodity futures market highlights for the week.