Futures File: Free-falling commodities stabilize during coronavirus outbreak

The ongoing coronavirus outbreak, which originated in China has been wreaking havoc on commodities markets, as the epidemic has created trade disruptions and massive uncertainty.

Raw materials that are heavily dependent on Chinese demand, such as copper, hogs and soybeans, had been in a free fall since the beginning of the year but stabilized this week. Meanwhile, U.S. stock index futures, which have gyrated wildly throughout this saga, reached all-time highs Thursday.

News has been somewhat more supportive, especially as the disease is spreading more slowly than originally feared, though is still quite dangerous. There are also reports of antiviral drugs being used successfully against the virus, which could help reduce mortality.

For market bulls, better news on the Wuhan coronavirus outbreak, coupled with cheap prices, is inspiring bargain-hunting buying.

On the other hand, this bounce in prices has been limited so far, causing some to fear that this is nothing more than a “dead cat bounce,” a brief price rally before another crash begins.

As of midday Friday, March copper traded for $2.56 per pound, up 4 cents this week, while April lean hogs fetched 66.5 cents per pound, up 5 cents on the week, and March soybeans stood at $8.80 per bushel, up mildly.

Cocoa Market Steams Higher

Cocoa prices rocketed past a three-year high on Friday, topping $2,900 per metric ton. A crucial component of chocolate, cocoa is grown in a select few tropical countries, making it a commodity prone to disruptions.

Nearly two-thirds of the world’s cocoa is grown in just two West African countries, Ivory Coast and Ghana. Both nations are suffering from dry conditions that are threatening this year’s crop. Worse yet, the two cocoa exporters recently announced the creation of a cocoa cartel. Dubbed “COPEC,” the two countries are working to establish higher prices by controlling supplies.

As a result of short-term harvest concerns and longer-run fears of the cartel pushing prices higher, investors are flocking into cocoa now, sending chocolate costs sky-high. This could be a bitter surprise for last-minute shoppers looking for Valentine’s Day sweets.

Walt and Alex Breitinger are commodity futures brokers in Silver Lake, Kansas. They can be reached at 800-411-3888 or www.paragoninvestments.com.

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