As we prepare to switch the calendar, many futures market participants are already looking ahead, trying to predict the values of commodities for the upcoming year.
As farmers plan out their crops and determine the size of livestock herds they’ll keep, they frequently use the futures markets to help them lock in prices for grain and animals to help ensure profits. Likewise, mining companies and energy producers use forward projections to help make decisions on new projects. And, users of commodities are hoping to lock in prices for the goods they buy so that they can profitably convert commodities like soybeans, lumber, natural gas and copper into the finished goods they sell to the public.
Shortages to surplus
In the past year, various commodities markets have seen an increase in production and falling demand, resulting in rising inventories and falling prices.
The best example of this phenomenon is corn; after a record crop this year, corn prices collapsed from $7.46 last January to only $4.26 on Friday.
Other markets like copper, gold, wheat and coffee are experiencing similar price pressures due to high levels of production and tepid demand.
Fed pulling back
For months, traders have been anticipating that the government’s stimulus program would be reduced, which led to rising interest rates and falling prices for gold, partially unwinding the impact of stimulus. Earlier this month, the Fed announced it was reducing its bond and mortgage buying program by $10 billion per month, confirming the market’s expectations. In the coming months, economists expect the economy will be further weaned off of stimulus, but the pace of the changes is still unknown.
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.