Futures File: Brighter outlook for farmers
U.S. farmers finally got some good news this week, lifting their spirits and prices after months of dismal news.
Last week, President Trump announced that he was invoking a Depression-era program to help bail out farmers hurt by the trade disputes with buyers of U.S. agricultural products. The bailout, which could cost up to $12 billion, is expected to be a one-time support, although details of the package won’t be known for months.
Trade disputes with the European Union are calming, with both sides agreeing not to escalate tariffs right now and instead work toward a “zero tariff” trade environment. Additionally, the EU has stated its intention to buy more U.S. beans, a move that could partially replace the loss of Chinese demand.
Finally, wheat prices surged on concerns that harvests from major exporters like the EU, Russia, Ukraine, Australia, and Canada are all expected to shrink this year. This should help U.S. wheat farmers sell more grain abroad, boosting prices.
Despite this week’s optimism, farmers are still worse off now than they were six months ago, primarily due to the trade disputes that are still largely unresolved.
Natural gas outlook rises
Natural gas is an oddity in the global commodity markets: It is worthless in some parts of the world and extremely valuable in others. In remote areas or offshore oil rigs, natural gas is produced as a byproduct of oil production, but without pipelines to carry the gas, oil producers view it as worthless and burn it on site. Meanwhile, in energy-poor countries like Japan, demand for energy is so high that they pay up to five times the going rate in the United States.
U.S. production of natural gas exploded over the last decade, increasing by 50% as new technology, like hydraulic fracturing, or “fracking,” unlocked massive stockpiles of the fuel. This caused U.S. prices to collapse, falling from a record high over $15 in 2005 to a mere $1.60 per million British thermal units in 2016.
Since then, the United States has rapidly expanded its export capacity, building massive facilities that liquify natural gas, allowing it to be transported by ship around the world. Long-term, this should allow U.S. companies to supply high-value markets abroad.
As part of recent trade agreements, the EU announced that they would seek to buy more natural gas from the U.S., rather than Russia. This helped lift prices to a two-week high at $2.80.
Opinions are solely the writers’. Walt and Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, Kan.