Futures File

October 24, 2014

Lower Heating Costs Loom

Natural gas prices are nearing one-year lows as US production continues at a breakneck pace, building supplies ahead of winter.

Last year’s unusually cold and long winter drained US gas inventories to a ten-year low, which buoyed prices near $6.50 last February. Since then, US gas production has been booming due to the ongoing explosion in fracking, which is setting up record production levels this year. As a result, inventories are rapidly rebuilding and storage levels are already back above average, which has pulled prices back down toward $3.50 per million British thermal units by Friday.

Without another harsh winter, some analysts expect prices to remain under pressure, especially if inventories continue to rise. Longer-term, non-heating demand sources like electricity production, transportation fuel, or chemical manufacturing may have to rise to cut into the supply glut from rising natural gas production in the United States.

Alongside natural gas, the other major heating fuel in the United States is heating oil, which is used predominantly in the Northeastern states. Produced from petroleum and chemically similar to diesel fuel, heating oil prices have fallen near a four-year low due to low crude prices, meaning that home heating costs should be cheaper for Americans on the Eastern seaboard as well.

 

Beans Pop over $10

On Friday, soybeans briefly pushed over $10 per bushel, the highest price in five weeks. Prices bounced primarily on rising demand from foreign countries, especially China. The recent one dollar rally has been a welcome reprieve for farmers who have been watching their crop value erode for much of this year.

Meanwhile, the largest soybean crop in US history is more than half harvested, but concerns linger that not all beans will get brought in. With wet weather continuing to plague Midwestern farmers, many have been unable to get into the field to bring in their crops, delaying harvest progress.

With a record-sized US crop and increasingly better weather in Brazil, the world’s largest soybean exporter, some analysts expect that prices will remain contained unless there is a major shift in the global supply and demand outlook.

As of midday Friday, November beans were trading for $9.86 per bushel.

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 over 20 years. Futures File, written on Fridays for Saturday publication, provides a brief summary of commodity futures market highlights for the week.