Futures File: Drought plagues plains; coffee market drips lower; gold shines amid uncertainty
August 23. 2013 4:20PM
WALT BREITINGER Breitinger & Sons LLC
Large areas of the Great Plains are abnormally dry or experiencing outright drought, hurting the corn and soybeans growing in those states. Although the drought is not as severe as the last two summers, dry conditions are hampering crops that were already underdeveloped due to late planting last spring. Forecasts for dry weather into next week helped to push soybean prices to a two-month high this week, with November beans trading as high as $13.19 per bushel.
As wheat farmers prepare to plant their winter wheat crop this fall, they would like to see more moisture in the ground, but optimism is drying up as forecasts project that the drought will persist.
Coffee Market Drips Lower
Coffee fell to the lowest price in over four years this week, grinding under $1.13 per pound on Thursday. Prices are under pressure as Brazil finishes harvesting a bumper crop and farmers begin selling their product onto the global market. Brazil is the world’s biggest producer and exporter, making it closely watched by coffee traders.
In 2011, prices perked as high as $3.06 as major producing nations like Colombia and Brazil had small crops at the same time that Chinese and Indian demand was picking up. During the period of high prices, farmers adapted to using more fertilizer and planting new trees, increasing the global supply and causing a two-year, 63% sell-off.
Looking ahead, Brazil is expected to have a record-breaking crop in 2014, signaling that caffeine lovers may continue enjoying a cheap fix in the future.
Gold Shines Amid Uncertainty
Financial, geopolitical and supply uncertainty all weighed on gold traders’ minds this week, sparking a rally in gold that pushed the metal to a two month high near $1400 an ounce.
News from the Federal Reserve indicated that stimulus may continue longer, boosting demand for gold from investors looking for a hedge against future inflation, while ongoing violence in Egypt and increasing attention on the Syrian civil war has prompted some investors to flock toward the perceived safety of gold.
Ongoing labor disputes in South Africa are also contributing to the rally, as that nation provides roughly 8% of global gold mining. By midday Friday, gold had climbed $24.30 (+1.8%) to $1396.
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.