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Deluge of crude

Register • May 5, 2014 at 12:15 PM

US crude oil supplies are continuing to swell, reaching nearly 400 million barrels last week, the highest level since 1931. Oil supplies are rising even as refineries are running near full-speed, pumping out large volumes of gasoline and diesel fuel.

As the market assessed the rising energy supplies over the past few weeks, crude oil prices have fallen more than $4.00 per barrel to a five-week low, which helped pull gasoline and diesel fuel prices lower by as much as a dime per gallon as well.

Despite the titanic US supply of crude, global prices continue to hover near $100 per barrel due to ongoing supply threats. Unrest in the Syria and Iraq, rising tensions between China and its nearby neighbors over disputed territories, and the persistent threat of escalating conflict between Russia and Ukraine all threaten to interrupt the global flow of crude oil, which is helping to keep prices high.

As of midday Friday, crude oil for delivery in June was trading for $99.91 per barrel.

Young Cattle Charge Higher

Cattle prices have been rising rapidly as the US supply remains constrained. The beef industry is still struggling through a multi-year drought in Western states that has destroyed pastureland, making it difficult to grow the national herd. The relative shortage of animals is causing many ranchers to hold onto animals for the purpose of breeding, which further limits the market-ready cattle in the near term.

Most dramatically, the market for young cattle, known as “feeder cattle” in the industry, has been especially strong, with prices up 40% over the last year. Feeder cattle are typically year-old steers or heifers that are ready to be moved into a feedlot, where they are fattened on corn until they roughly double in weight.

The market for May feeder cattle reached an all-time record high again on Friday, trading over $1.84 per pound. Despite the shockingly high prices, there is still strong demand for feeders, since corn prices are still relatively cheap and the market for market-ready, or “fat” cattle, is exceptionally high. This price differential allows feedlot operators to continue to profitably buy feeder cattle, feed them corn and then sell the fattened animals a few months later.

Opinions are solely the writer's. Walt Breitinger is a commodity futures broker in Valparaiso, Ind.  He can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.


Alex Breitinger

Breitinger & Sons, a division of Paragon Investments

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