Back to the Futures: Euro’s interest goes negative, feeder cattle price jumps and corn creeps lower

by Walt Breitinger, guest contributor
Published: June 6 2014 | 2:00 pm - Updated: 6 June 2014 | 5:24 pm in Column and advice,

Euro goes negative

Early Thursday morning, the European Central Bank announced that it was making an unprecedented move: lowering interest rates below zero. This means that banks will actually pay 0.1% for the privilege of having their money held by the ECB. For years now, the United States and Japan have paid near-zero interest to banks for depositing funds with the government, but Europe’s move to charging banks is new territory for a major economy.

The ultimate goal of these interest rate policies is to encourage banks to find something else to do with the money, such as lend it out to businesses or consumers, which policymakers hope will stimulate flagging economies. Economists and central bankers have been fearing that a deflationary spiral could occur which would halt economic activity across Europe. Negative interest rates are intended to stimulate healthy, yet controlled, inflation.

The move to negative rates was largely anticipated, as ECB President Mario Draghi has been hinting at it for weeks. Nonetheless, the announcement caused investors to take their money out of the euro, briefly knocking the currency down near $1.35, the lowest level since early February.

Longer-term, if the ECB’s maneuver can stimulate growth, there may be stronger investment demand in Europe, but the current low rates have investors currently seeking higher-yielding markets elsewhere.

Corn creeps lower

After another week of favorable weather, US farmers have planted over 95% of this year’s corn crop, increasing the likelihood that this year’s harvest could be a record-breaker. The USDA will update its corn production estimate next week, which could show record-high projections for the size of the US crop.

As a result of the potential large supply looming, the price for this fall’s corn crop fell to the lowest level since January, trading Friday down near $4.45 per bushel.

Feeder cattle at new record

Rising demand for young cattle, or feeder cattle, has corralled prices to an all-time high again this week, with August feeder cattle charging over $2.00 per pound. A nationwide shortage of calves and high beef prices have encouraged cattle feeders to pay up for young cattle.

This week’s corn decline also helped to support feeder cattle prices, as cheap corn makes it easier to profitably fatten up cattle, even if farmers have to pay record-high prices for the feeders.

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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