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Paragon Investments' Futures File: Oil, Soy & Sugar

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U.S. to be Largest Oil Producer

The United States is poised to become the worlds largest oil producer next year, overtaking Saudi Arabia and Russia to seize the top spot.

Domestic oil production has doubled over the last decade as new drilling technologies, like fracking, have allowed U.S. producers to profitably pump from far-flung oil fields, spanning from Ohio to New Mexico, turning the United States into a major exporter.

Despite rising U.S. production, global prices have been climbing in the past year as OPEC and Russia reduced their own production to raise prices. For now, rising prices are a huge benefit to oil producers, but are increasingly hurting drivers at the pump as oil traded over $70 per barrel on Friday.

Outlook Worsens for Soybeans

This week, the news got worse for the United States top agricultural export, with new rounds of tariffs and a bearish forecast from the U.S. Department of Agriculture.

China matched the first and second rounds of U.S. tariffs of $34 and $16 billion last week, respectively, prompting President Trump to up the ante to tax another $200 billion of Chinese imports. As the trade war escalates, it seems more likely that Chinese tariffs against U.S. soybeans will be around for the foreseeable future, sharply reducing demand from the Asian nation that buys one third of all U.S. soybeans.

Due to this diminished demand, the USDA released a fresh outlook for soybean supplies, suggesting that stockpiles could rise by over 50% by the end of next summer, projecting a carryout of 580 million bushels.

This looming glut of beans slashed prices to a new nine-year low on Friday morning under $8.12 per bushel.

Sugar Market Sours

Sugar prices are nearing a three-year low, melting under 11 cents per pound on Friday. The sweetener is suffering from a record-large global glut and rising production.

Longer-term, the market will deal with two major opposing trends. Rising incomes in developing nations are giving consumers more money to spend on discretionary food purchases, like sweets and meats. However, rising warnings from the scientific community about the dangers of sugar are dampening demand, resulting in a slow growth in global consumption each year.

Despite the bearish outlook, some bargain hunters are getting ready to buy sugar on hopes that the market could double, as it did the last two times prices fell to 10 cents per pound.

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About the author

With a degree in Grain Science / Management from Kansas State University, Mr. Haverkamp has worked directly with and for several corporations in research, logistics, and origination of commodity products. Among these are Continental Grain, Kansas Wheat Commission, National Livestock Association, Kice Industries, and Land 'O Lakes. Mr. Haverkamp is a regular guest analyst on both radio and television programs throughout the Midwest and also provides fundamental and technical research for Bloomberg, DTN, Dow Jones, The Wall St. Journal, CNN and CNBC as well as several other local and regional news syndicates. Mr. Haverkamp sat on the board of directors for the NIBA (National Introducing Brokers Association) in Chicago for five years and on the National Futures Association's nominating committee for one year. Mr. Haverkamp began trading in 1987 and founded Paragon Investments in 1996. 

  Mr. Haverkamp continues to provide consulting services for individual investors, livestock operations, grain processors, and individual producers as well as holding the title of CEO for Paragon.

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