The Federal Reserve announced plans for QE3 (Quantitative Easing 3) on Thursday, which sent precious metals, petroleum and stock markets sharply higher.
According to the plan, the Federal Reserve will create new money to purchase $40 billion of mortgage-backed bonds each month indefinitely. This move by the Fed is intended to stimulate the sluggish housing market by making it more affordable to purchase houses by driving down mortgage rates. In addition, the Federal Reserve will keep its key interest rate, the federal funds rate, below 0.25% until 2015 to encourage bank lending and to further stimulate the struggling U.S. economy. While these efforts are intended to stimulate the economy, some economists warn that the increased supply of money and low interest rates can lead to inflation.
Precious metals, long considered a safe-haven from inflation, rallied sharply in the wake of the Fed announcement. Silver spiked as high as $34.98 per ounce, up $1.29 (+3.8%) on the week, while gold gained $45 (+2.5%) per ounce by midday Friday, trading for $1773.
Battered Crops Remain Valuable
On Wednesday, the USDA updated farmers, consumers and traders on the current state of the United States' corn and soybean crops. Analysts had been widely anticipating a further deterioration of the nation's two most valuable crops, but the extent of the damage was unknown. Record-breaking heat and widespread drought severely damaged corn and beans across the Midwest, and the USDA confirmed this in Wednesday's report, showing smaller production than it had reported in August.
National soybean yields were cut to 35.3 bushels per acre down another 2.3 percent from last month's report, which spurred a buying frenzy in the soybeans. By Friday, soybeans for November delivery had climbed 64 cents per bushel (+3.7%) to $17.65.
The corn crop was not quite as bad as had been feared, with the USDA cutting the national yield by 0.5 percent to 122.8 bushels per acre, above the average analyst's estimate near 120.5 bu/acre. As a result of the slightly better-than-expected supply outlook, corn prices fell this week, dropping to a two-month low of $7.59 per bushel. Despite the short-term sell-off, corn prices still remain near record highs, remaining elevated as this year's crop could be the worst since 1995.
This year's corn and soybean production is expected to be more than 13% smaller than last year's, but harvest progress over the next few weeks will shed more light on this year's crops.
Opinions are solely the writer's. Walt Breitinger is the president of Breitinger & Sons LLC, a commodity futures brokerage firm in Valparaiso, IN. He 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.