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Paragon Investments' Futures File: Cattle & Sugar Climbing

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Beef Grinds Higher

Cattle prices are continuing to climb, reaching an 11-month high on Friday above $1.25 per pound.

Beef demand has been strong as the U.S. economy continues its steady expansion, giving consumers more confidence that they can splurge on steaks.

Cattle prices jumped up this week as Winter Storm Gia brought treacherous conditions across Kansas, threatening animals in the third-largest cattle-producing state.

Additionally, improving export outlooks are boosting the prices after demand for U.S. livestock fell sharply last year amidst the trade disputes with China, Canada, and Mexico.

Since then, the renewed NAFTA deal diminished worries about Mexican and Canadian demand, a savior for ranchers as those two nations are major buyers of U.S. beef. This week, more headway was made with China on resolving the entrenched trade war, renewing hopes that Chinas 1.4 billion diners could soon be eating more American beef.

Meanwhile, exports to Japan and Taiwan have been strong recently, although details are unknown due to the ongoing government shutdown which has left markets cut off from vital data from the U.S. Department of Agriculture.

Sugar Rally Crystallizing

Sugar prices appear to have bottomed out and have begun working on a rally, sparking investor demand.

The sweetener fell to a 10-year low at 9.83 cents per pound last year on expectations for a global glut of sugar and ultralow crude oil prices. Sugar and oil are linked because top-grower Brazil uses sugar to produce ethanol, much as U.S. farmers use corn to make biofuel. As oil prices rise and fall, so too does demand for the biofuel feedstocks.

The recent rally in oil from $42 per barrel at the end of 2018 to $52 on Friday has helped boost sugar prices, but so too have concerns about drought in Brazil reducing this years sugarcane harvest. A smaller crop could drop Brazils exports to the lowest level in over a decade, which is boosting prices globally, nearing 13 cents per pound this week.

For the average American, the recent 30% jump in the global market wont affect prices at the grocery store significantly. Imported sugar is taxed heavily as part of a government effort to support American sugarcane and sugar beet farmers, leading to much higher U.S. prices. So, while global sugar futures went from under 10 cents last fall to nearly 13 cents this week, the corollary U.S. futures contract moved from a low of 24.94 cents to a high of 25.6 cents this week.

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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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