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Futures File: Crude oil catches fire

Walt and Alex Breitinger

Oil prices exploded to a six-month high this week as global production outages threatened to crimp supply.

Wildfires in Canada cut off production in some of Alberta's major oil fields, while fighting factions in Nigeria have led to production cutbacks. Those two nations supply around 7 percent of the global oil market.

With oil near $50 per barrel, some producers and traders are using the futures markets to lock in these relatively high prices, with an expectation that prices could decline again in the future.

These oil market "bears" are emboldened by recent data showing that Iran has increased its production faster than expected after the nuclear accord with the United States last year opened the door to loosened embargoes against the Iranians.

As of midday Friday, May 13, crude oil for delivery in June was worth $46.20 per barrel.

Soybean supply squeezed

The U.S. Department of Agriculture shocked markets on Tuesday with an outlook for a much tighter global soybean supply. U.S. stockpiles could run low by the end of the summer, which led end users and investors to bid up the bean market after the report. At one point Tuesday, soybeans went "limit up," climbing the exchange-permitted maximum 65 cents per bushel.

The global supply is running low due to ongoing strong demand from China, the world's biggest consumer of beans. Meanwhile, Argentina, the world's third-largest exporter of soybeans, is suffering from damaging rains during their harvest, forcing buyers to purchase more U.S. beans, helping to push prices to near $11 this week.

This move has been wonderful for farmers, especially those who still have open acreage they can plant soybeans on this year.

Meanwhile, other Americans could feel the pinch of higher soybean prices, even though few Americans consume soybeans directly. Soybean oil is used prevalently throughout the food industry for both cooking and salad oils. Soybean meal is a major component in animal feed, impacting meat prices.

Meanwhile, corn prices remain lackluster near $3.90 per bushel while wheat lingers near multi-year lows.

Opinions are solely the writers'. Walt and Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, Kan. They can be reached at (800) 411-3888 or www.paragoninvestments.com. This is not a solicitation of any order to buy or sell any market.

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