Gas Blasts 50% Higher
Of all the actively traded futures contracts, natural gas and diesel have exploded this year, with natty gas up nearly 50% in January alone! Diesel, virtually the same fuel as home heating oil, increased almost 20% in January. The price of crude oil is at the core of these rallies, which, like diesel, was up 20% last month and is up more than 50% year-over-year. Every aspect of our economy is dependent on energy prices. The threat Russia will invade Ukraine and Russia’s gas supply to Europe will be cut off is fueling the notable spike in natural gas. President Biden deployed 3,000 U.S. troops to Germany and Poland midweek, which intensified fears of a military event.
Those watching inflation should realize food, transportation, housing, manufacturing, clothing, and virtually every other aspect of our economy are dependent on the price of energy. Iowa State, for example, estimates as much as 50% of the cost of growing corn can be attributed to energy expenses. Until energy consumers can switch to using renewable fuels, inflation will continue to be driven by energy prices. Natural gas for March delivery fell to $4.52 per million BTUs Friday afternoon.
Weather, Chinese Craving Propel Soybeans
Plenty of speculation on the supply side has been created by fears South American soybean production will be threatened by dry weather, just as Chinese appetite for our beans has stimulated the demand side. Compared to other commodities, the rally in beans has come in second only to the energy group mentioned above. March corn was down about 10 cents this week. March wheat traded at $7.66 while beans, the high flyer, were up a whopping 90 cents per bushel, with March beans hitting $15.56 on Friday afternoon.
The bears took control of the stock index futures midweek with the NASDAQ tumbling the most. Geopolitical risks, shocking corporate earnings, and fears of rate hikes by the Federal Reserve contributed to heavy selling, especially on Thursday. Many market watchers now expect the Fed to raise interest rates five or even six times this year, with the first increase in mid-March. The March NASDAQ traded at 14,750 toward the close on Friday.
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