Futures File

April 29, 2016

Slow Economy Makes Metals Move Fast

Prices were boosted by weak economic news in the US this week and an update confirming that the Federal Reserve was keeping interest rates low. The US economy grew by only 0.5% during the first quarter, the slowest growth in over two years. This slow growth has made the Fed cautious about raising rates, since higher borrowing costs could cause a worse slowdown.

As a result of general economic fears and ongoing expectations of low interest rates, investors flocked toward gold and silver while dumping stocks. As of midday Friday, gold and silver were above one-year highs at $1,296 and $18.00, respectively, per ounce.

 

Oil Prices Buoyed

Crude was near $26 per barrel just three months ago, and then quickly doubled to over $46 by Friday.

Though stockpiles on hand remain ominous, longer term investors are looking toward the day when demand will, once again, outpace supply. Exploration has come to a standstill, oil rigs are shutting down, and general spending on production facilities is continuing to plunge.

Meanwhile, major oil producer Venezuela could be forced to shut down oil drilling and refineries due to an electricity shortage.

Despite these bullish factors, some oil traders expect production to begin to rise again as prices near $50 per barrel, potentially sending the market back downward in a seesaw action.

 

Beef Market Crumbles

While most commodities had a sharp rise this week, cattle prices collapsed to a four-month low, trading under $1.23 per pound. Prices are plunging due to the cattle supply outweighing beef demand. Cold, rainy weather has discouraged would-be grillers, and bargain hunters are still preferring cheap pork over beef, forcing retailers to continue cutting prices for beef cattle.

Adding insult to injury, corn prices have been rising as cattle drop. Since grain is a livestock producer’s main expense, ranchers are being slammed with industry-crippling rising costs and falling revenue.

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.