Jackson Hole talk moves financials higher
Federal Reserve Chair Jerome Powell’s annual Wyoming speech sent metals, stock indexes, energy and Treasury bond futures sharply higher on Friday.
His talk was mainly “dovish” in tone. Toward the end, Powell implied the Fed would delay tapering or raising interest rates soon, partially due to the COVID delta variant’s dampening effect on our economic recovery.
If the Fed holds off on raising rates, inflationary expectations tend to rise and pull commodities upward, especially precious metals. December gold traded at $1,819 per ounce and silver at $24.10, while the Euro currency traded at $1.1799 and the S&P at 4506.00
Hurricane Fears Drive Gas Higher: A severe natural gas supply shortage in Europe and fears that Hurricane Ida may jeopardize supply from the Gulf of Mexico region boosted prices. Crude oil and its products also saw heavy buying from speculators and hedgers as the storm approaches Louisiana’s coast. As a result, natural gas traded at $4.35 per million BTUs and October crude at $68.60 per barrel.
Droughts, Fires, Flooding Fuel Fears: Extreme and exceptional drought in western North America continues to menace U.S. crops while floods hit Tennessee. Tennessee’s death toll was estimated at 20, just as fears rose that Hurricane Ida could threaten lives and housing. North America’s largest recreational attraction, the Boundary Waters Canoe Area, was closed to visitors due to drought and fires.
As most eyes are on the troubled evacuation, Afghanistan suffers from its worst drought in 30 years. Russia, Brazil, Canada — all major grain producers — are hot and dry with little hope of enough water to restore soil moisture in time to save existing crops. Of the major North American crops impacted by the drought, wheat and oats have risen the most. Wheat for September delivery traded at $7.21, while December oats brought $5.20 per bushel.
Drought Tolerant Crops Amazing Chance to Adapt: Drought-tolerant (DT) corn, or maize as it’s also called, has joined the list of genetically modified crops. While they don’t reduce greenhouse gas emissions, GMOs do enable farmers to respond to dry conditions. As droughts have emerged as the leading cause of yield losses, and few farmers have irrigation available, the use of DT maize is seen as a helpful adaptation. Maize is the most water-dependent crop, but DT maize may offer relief, along with crop insurance and government disaster assistance. Corn for delivery in December traded at $5.51 as of midday Friday.
Walt Breitinger is a commodity futures broker with Paragon Investments in Silver Lake, Kansas.