Futures File

February 27, 2015

Tougher Outlook for Farmers

US crop prices have been stagnating in recent months, signaling another tough year for US farmers. The USDA is projecting that net cash income will drop 22% in 2015, the biggest year-over-year drop for farmers since the Great Depression.

Worst-hit have been the corn and wheat markets, which are near four-year lows due to robust harvests and waning demand from China. Meanwhile, hog producers have seen the value of their animals cut in half during the last year.

Other markets like cattle and soybeans are looking healthier, but are still down significantly from recent highs.

Despite the negative outlook, most farmers are still profitable. But with lower profit margins, it is even more crucial that farmers carefully manage their input costs and utilize forward sales, futures market hedges, and option purchases to help them weather these harder times.

 

Gasoline Drives Higher

Gasoline prices are revving up, reaching a two-month high this week. Since mid-January, gasoline futures gained nearly 50 cents per gallon, reaching $1.95 on Friday morning. Although $1.95 may sound cheap, that is a wholesale price without taxes or additional costs added in.

Drivers are feeling a pinch at the pump as refineries continue to be shut down. Some are closed for planned seasonal maintenance, as they retool production to make more gasoline for the summer driving season. Meanwhile, other refineries are slowed down due to the largest refinery worker strike since 1980. Exact figures for lost production are unknown, but some estimate it could result in as much as a quarter of US capacity being lost.

This lost capacity is causing a backlog of crude oil and could lead to smaller inventories of gasoline and diesel fuel, resulting in the sharply higher prices that drivers are seeing.

 

Coffee Drips Lower

Coffee prices fell to a one-year low this week as the outlook for Brazil’s coffee crop bloomed. Brazil, the world’s largest coffee producer and exporter, had been experiencing a drought, but well-timed rains could salvage this year’s crop. As a result, coffee has fallen nearly 90 cents per pound since October, a 40% decline.

Longer-term, some analysts warn that prices could rebound due to rising demand from Asia and a general global shortage, leading many coffee traders to remain jittery.

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.