Here is this week’s edition of Futures File, our weekly commodities wrap-up:
Better Crop Batters Bean Prices
Soybean prices were battered lower on Friday morning as the USDA released a report showing a better-than-expected crop this year. Although the soybean crop was badly damaged by this summer’s drought, the beans recovered this fall amidst good rains. At the peak of the drought, it had been feared that the crop would yield only 35.3 bushels per acre, but Friday’s update from the USDA showed a much more optimistic 39.3 bushels per acre. As a result of the higher yields and larger national crop, prices tumbled this week to the lowest price in over four months.
With nearly the entire US soybean crop harvested, farmers, traders, and end-users have shifted their focus to the South American crop, where Argentinean and Brazilian farmers are busy planting their summer soybean crop. Those two nations produce 45% of the world’s soybeans and therefore warrant close monitoring in the coming months. As of midday Friday, soybeans for November delivery were worth $14.72 per bushel, down 55 cents this week (-3.6%).
Split Government Pushes Markets toward Fiscal Cliff
This week’s election results increased concerns that the U.S. government would not be able to resolve upcoming budget issues. With the political makeup mostly unchanged by Tuesday’s contest, traders feared that President Obama and Congress might remain deadlocked over how to reduce the budget deficit. If they are unable to reach a plan by the end of the year, automatic tax increases and federal-spending cuts would kick in, an economically damaging combination known as the “fiscal cliff.”
Out of fear that the “fiscal cliff” could lead to another recession, investors sold stocks, foreign currencies and copper, in expectation that all of those assets would decline in value in a recessionary environment. At the same time, they chose to keep their money in cash, US Treasury Bonds or gold, all of which gained value this week.
By midday Friday, the Dow Jones Industrial Average had lost 180 points (-1.4%), the Euro eroded by 0.85% to $1.2720, and copper had crumbled four cents per pound (-1.1%). Over the same period, gold gained $57 per ounce (+3.4%) to $1733 and US 30-Year bonds had jumped in value by 1.9%.