Low Gas Prices are a Treat

Gasoline prices are tumbling, scaring refiners, but giving a welcome treat to drivers. According to government data, many retail markets are seeing prices comfortably under $3.00 per gallon for the first time in almost four years. Reasons include record US oil production, infighting among Middle Eastern oil producers, improved fuel efficiency, and a typical dip in gasoline demand after the busy summer driving season.

Many consumers, haunted by memories of prices consistently topping $4.00, are looking for ways to lock in these low prices. Short of building storage tanks, it is difficult to amass a large stockpile of gasoline. However, the standard futures contract, consisting of 42,000 gallons, allows consumers and investors to buy gasoline on a dramatically greater scale. In any given day, hedgers, traders, and investors buy and sell over 100,000 contracts, creating a large market for the fuel.

Although substantial factors have colluded to slash unleaded prices, there is no guarantee that prices will rebound in the near future. Governmental relaxation of drilling prohibitions, uncertainty regarding the U.S. economy (now devoid of new quantitative stimulus measures), and higher gasoline supplies in general are all reasons that drivers may continue to enjoy a "treat" of lower prices beyond the Halloween season.

As of Friday afternoon, December unleaded gasoline futures were trading at $2.14 per gallon, a price that excludes taxes and other expenses.

Soy Spooks Meat Producers

After hitting multi-year lows earlier this month, the grain markets have been rallying sharply as bargain hunters swoop in and buy cheap grains. Leading the way up has been soybean meal, which is a high-protein product of soybeans that is primarily fed to livestock.

US farmers are harvesting a record-sized soybean crop, but many are holding onto the oilseed in hopes that prices will rise further, which is limiting the supply to processors who crush soybeans into soybean oil and soymeal. As a result, there is a tight supply of soymeal, which has caused prices to rise over $100 per metric ton in the last month, a dramatic jump in costs for livestock producers as their hogs, cattle, chickens and turkeys gobble up soybean meal.

Foreign buyers have also shown increased interest in US soymeal, helping to support prices, which stood at $385 per metric ton on Friday.