Back to the Futures: Sugar market sours, gold melt and gasoline may spike

Published: December 20 2013 | 1:00 pm - Updated: 29 March 2014 | 1:08 am in
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[Editor's note: Every Friday visit the Business 380 for "Back to the Futures," a quick discussion of the week's grain, livestock, gasoline prices and other topics.]

Sugar market sours

Sugar prices declined on Wednesday to the lowest price since 2010 as traders nervously await record production in Brazil and Thailand; together, those two nations account for nearly 60% of global sugar exports.

Falling prices are hurting US sugar producers, who are largely losing money on this year’s crop. As a result, many producers are defaulting on loans that they took out from the USDA. Unable to collect on the defaulted loans, the USDA is instead taking payment in sugar, which they have been selling to domestic biofuel producers. Unfortunately, the USDA has had difficulty finding willing buyers, which has forced it to sell the sweetener at steep discounts, resulting in a loss of over $250 million for the farm support program.

As of midday Friday, raw sugar for delivery in March had bounced to 16.4 cents per pound, showing a little strength as bargain buyers came into the market at the end of the week.

Gold melts as Fed reduces stimulus

Gold prices collapsed to a six-month low this week after the Federal Reserve announced on Wednesday that it was going to reduce its bond-buying program. Although the Fed will still purchase $75 billion in bonds during January, this marks a reduction from the previous pace of $85 billion per month. This “tapering” of bond purchases came somewhat sooner than expected and was taken negatively by many gold traders who had hoped that the Federal Reserve would continue maintaining its unprecedented policy of fiscal stimulus.

In the hours after the announcement, gold prices declined more than $50 per ounce, dropping to $1186 per ounce. Unless gold stages a $500 rally in the next week, 2013 will be the first down year for gold in over a decade.

Gasoline sparks to new high

A slew of economic data this week showed stronger US economic growth and consumer spending, while the Federal Reserve took an optimistic stance that the economy was improving enough to be weaned off of stimulus. These factors encouraged gasoline traders to buy up the fuel on expectations that a stronger economy would lead to increased demand.

By Friday, they had bid wholesale gasoline futures up over $2.78 per gallon, the highest price since early September.

Despite the longer-term optimism, gasoline inventories are still relatively high, which could put the brakes on further price increases.

Opinions are solely the writer's. Walt Breitinger is a commodity futures broker with Paragon Investments in Silver Lake, KS. 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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