Traverse City Record-Eagle

Business

June 14, 2014

Futures File: Crude oil prices boil higher after Iraq unrest rises

TRAVERSE CITY — Crude oil prices exploded higher this week as the military conflict escalated in Iraq.

Sunni militants have reportedly captured multiple major Iraqi cities and now threaten to take Baghdad, the capital. Meanwhile, as government troops were in full retreat, ethnic minority Kurdish troops took control of oil-rich Kirkuk, a city in northern Iraq. As the Iraqi government’s control collapsed, fears rose that instability could interrupt the flow of oil from the world’s sixth-largest oil exporter. In the wake of these fears, oil prices blew over $107 per barrel on Friday morning, the highest price in nearly nine months.

In the near-term, it looks as if there could be more conflict to come in Iraq. The Iraqi government is calling upon the US for military support, including airstrikes. Meanwhile, there are reports of Iranian troops crossing the Iran-Iraq border in support of the government, which could create an odd alliance for the United States and Iran who are both seeking to bolster the current Iraqi leadership.

Grains in the drain

On Wednesday, the US Department of Agriculture confirmed the market’s expectation that this year’s crop of corn and soybeans will more than meet demand, leading to an abundance of grains this year. Without a major weather event, like the searing drought that hit the Midwest in 2012, USDA analysts expect that US grain stockpiles will swell this fall. As a result, corn and bean prices fell to multi-month lows, with December corn crumbling to $4.39 and November soybeans nose-diving to $12.04 per bushel.

Cattle catapult to new record

Cattle prices continued their meteoric rise this week, as the value of young cattle, known in the industry as “feeders” rose to a record high price of $2.08 per pound on Friday. Meanwhile, the price for market-ready or “fat” cattle stampeded to a four-month high, with August live cattle pushing up to $1.47 per pound on Friday. Some analysts warn that prices could continue climbing until there is a sharp drop-off in consumer demand for beef.

Cattle supplies are still relatively low due to the droughts of the past few years limiting overall herd size, which has left the market imbalanced, with too much demand chasing too little supply.

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.

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