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The Journal Gazette

  • Walt and Alex Breitinger

Monday, January 01, 2018 8:35 am

Column: Palladium led commodities markets in 2017

WALT and ALEX BREITINGER | Breitinger & Sons LLC

Of all commodities markets in 2017, palladium led the way higher, gaining more than 50 percent.

The metal is one of the rarest on earth -- 30x rarer than gold -- and is used primarily in catalytic converters to clean up automobile exhaust.

Demand for palladium has been strong, especially after Hurricanes Harvey and Irma wiped out millions of vehicles, prompting heavy auto purchases in September. Continued expansion of automobiles in China and increasing focus on air pollution has helped boost the metal as well.

Despite the rally in palladium, its sister metal platinum has not appreciated, largely because of falling demand for diesel vehicles, where platinum is more heavily used.

In addition to being exceptionally rare, palladium supplies are geographically concentrated, with 75 percent coming from Russia and South Africa alone, making the metal especially susceptible to supply shocks. Labor unrest in South Africa and geopolitical tensions with Russia frequently threaten global access to the metal.

On Thursday, palladium reached a 17-year high at $1064 per ounce, only to fall sharply on Friday as traders booked profits for the year, selling off their holdings before year-end.

Grain surplus hangs over markets

2017 marked another year of grain surpluses, with near-record global harvests of corn, soybeans and wheat. Many U.S. farmers saw hearty harvests this year but were disappointed with low prices that ensued.

Fearing the trend will continue, producers are needing to make a careful plan for next year, managing costs and price risks as they prepare to plant in the spring. For many, the futures and options markets are a vital tool to pre-sell their crop or lock in break-even levels to allow their operations to weather potential low prices again in 2018.

For livestock producers, the continued low grain prices have been helpful to keep feed prices manageable, allowing them to expand their herds in 2017. As of midday Friday, corn traded at $3.50 a bushel, while wheat fetched $4.25 a bushel and soybeans stood at $9.60 a bushel.

Washington’s gift to stock markets

All year, U.S. stock markets anxiously awaited news from Washington, D.C., keeping a close eye on Congress, the White House and the Federal Reserve.

Despite a series of high-tension events and turmoil in Washington, stock buyers were satisfied by the end of the year as Congress passed a tax break that largely benefited corporations.

Coupled with ongoing outlooks for relatively low interest rates from the Fed, equity markets climbed, with mini S&P 500 futures reaching an all-time high at 2698.25 on Friday.

Walt & Alex Breitinger are commodity futures brokers in Valparaiso. They can be reached at (800) 411-3888 or www.indianafutures.com. This is not a solicitation of any order to buy or sell any market.