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Paragon Investments' Futures File: Eggs, Oil & Gold

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Egg Market Scrambles Higher

Egg prices have nearly tripled ahead of the Easter holiday, when U.S. demand typically spikes. This year, its not a travelling bunny that is driving demand, its Americans staying in their houses as they combat the spread of COVID-19.

The U.S. supply chain is optimized to deliver bulk-packaged eggs to restaurants or processed eggs, which account for nearly 30% of the total supply. Demand for these eggs has collapsed amidst restaurant closures. Meanwhile, as more Americans are at home, they are cooking full breakfasts and baking more, increasing demand for twelve-packs of eggs at the store.

As a result, the available supply at groceries is restricted due to logistics and rising consumer demand, rather than actual egg shortages. This pushed average grocery store costs up from 94 cents per dozen to over $3.00 last week, according to the U.S. Department of Agriculture.

Across the food supply chain, other items are feeling the stress of restaurant closures, leading to excesses of items like chicken wings, butter, and American cheese, all of which are consumed at higher rates away from home than by grocery store shoppers.

Oil Truce Disappoints Markets

On Thursday, the Organization of the Petroleum Exporting Countries (OPEC) and Russia met and made a momentous agreement to slash oil production by over 20%.

This will end a monthlong feud between Saudi Arabia and Russia where two of the worlds biggest petroleum producers raced to outproduce one another. The two giants have now agreed to drop their production to 8.5 million barrels per day.

The oil market leapt last week on expectation of this deal, but as negotiations dragged on and the proposed production cuts got smaller, prices faded. Rumors flew Thursday morning that cuts could be as high as 20 million barrels, but when the ultimate deal was revealed to be less than half of that, prices tumbled. By the close of the week, prices were near the low, trading near $23 per barrel.

Precious Metals Explode

All week, investors clamored to buy gold and silver, chasing gold to levels not seen in ten years. Many economists believe our governments trillions of dollars of stimulus could ignite inflation, cause the value of the U.S. dollar to drop, and precious metals to skyrocket as they have when foreign countries or other administrations borrowed aggressively and increased money supplies.

Gold finished the week at $1740 per ounce, and silver settled just shy of $16 per ounce.

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About the author

Alex Breitinger is Paragon's Director of Business Analytics. He has more than 10 years of experience serving agricultural producers and end users.

Alex’s data-forward approach delivers meaningful analysis to clients looking to more deeply understand their complex operations. His expertise is helping agribusinesses manage agricultural commodity price risk, but he also has specialized knowledge of hedging other financial risks like metals, energy products, stock portfolios, and foreign currencies.

Before venturing into the world of commodities, Alex carried out analytical research for the National Oceanic and Atmospheric Administration (NOAA), the governmental organization that oversees the National Weather Service.

In addition to his work with clients, Alex authors the weekly syndicated column ‘Futures File’ about commodities markets. It appears in newspapers across the country and reaches more than a million readers weekly.

He can be reached by phone at 785-338-9611

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