Futures File

September 26, 2014

What’s Up?

During this prolonged period of abundance of commodities, prices for grains, metals, crude oil, natural gas, and cotton have pounded into the ground, cheapening costs for consumers, but leaving little or no profit potential for farmers and other producers. However, there remain pockets of bullish trends with consistent, even dramatic, price rises for a few of the basic materials we need to survive and flourish as a country:

 

Got Milk?

Milk prices rose to an all-time high again this week with the benchmark futures contract topping 24.5 cents per pound.

Prices are rising as US demand for milk and cheese hits a record, according to USDA data. Meanwhile, foreign demand for dairy is heating up as well, prompting rising exports. These factors have combined to make dairy more expensive for consumers at the grocery store.

Despite shoppers’ woes, milk producers are benefitting from strong demand and high prices. Furthermore, they are saving money as some of their feed costs have collapsed this year. Animal feed can make up as much as half of a dairy operation’s costs, and falling corn and soybean prices this year are helping to reduce expenses, enhancing profitability.

In the near term, analysts suggest that prices could remain high, as demand for dairy products usually rises toward the end of the year.

 

Where’s the Beef?

Ongoing beef supply tightness has helped sustain the market for cattle, pushing prices to all-time highs recently. Demand has been especially strong for young cattle, known as feeder cattle, which feedlot operators buy with the hope of fattening them up on cheap grain to sell at a profit. Values for feeder cattle reached an all-time high at $2.31 per pound on Friday.

Longer-term, some market watchers worry that high prices for beef will hurt demand as consumer shift towards cheaper pork or poultry, but so far, there has been little sign of a slowdown in the cattle market’s meteoric rise.

 

Love Chocolate?

Although dieticians don’t consider chocolate to be an essential food group, people who need a daily fix are hurting as cocoa prices continue to rise.

Ongoing concerns that the Ebola epidemic in West Africa could interrupt exports has been pushing the market higher, reaching near $3400 per metric ton on Thursday. Although significant threats to production haven’t materialized yet, the fear of a potential shortage has pushed prices to a three-year high.


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.