Here is this week’s edition of Futures File, our weekly commodities wrap-up:
Soybean prices collapsed by nearly $1.00 (-6.5%) per bushel during the week, hammered lower by news that China had cancelled major soybean purchases from the United States. The cancelled orders, which represented 540 million metric tons, are the largest cancellation in at least 14 years. American farmers are likely losing business to exports from Brazil and Argentina, where crop conditions are improving. Prices for January soybeans fell as low as $14.03 on Thursday, but rebounded to $14.30 on Friday as traders went “bargain-hunting” before the holiday break.
Sugar Supported by Ethanol
Sugar prices, which have been in a downward trend for over two years, may be seeing a resurgence as demand for cheap Brazilian ethanol, produced from sugar, picks up in the United States. As a result of this year’s drought, many U.S. ethanol producers have seen profits erode as corn prices spiked. Additionally, there are concerns that poor growing conditions in Brazil will affect Brazil’s sugar crop this year. March sugar futures were trading at 19.26 cents per pound as of midday Friday.
Over the Fiscal Cliff?
Financial markets tumbled on news that Congress was going on its Christmas vacation without resolving the so-called “fiscal cliff” – a potentially crippling combination of tax increases and spending cuts. Hardest hit was the S&P 500 futures market, which fell as much as 50 points (-3.5%) in the aftermath of the announcement, dropping to the lowest price since early December.
Simultaneously, gold futures collapsed to a four-month low at $1635. Prices tumbled over $60 per ounce (-3.5%) during the week, partially driven by concerns that higher taxes could decrease investor demand for precious metals.
Celebration of Christmas
Many markets, such as grains and livestock, are dominated by North American or European trade centers and have traditionally been closed or subdued during the Christmas week. As the world becomes “smaller” and markets react more to changes in currency values, crude oil prices and demand from Asia, commodity traders can be deprived of their typical trading break between Christmas and New Years. In the coming week, trading volumes are expected to be light, which can exaggerate market moves.