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Perspective: Morning Commentary for July 28

By: Arlan Suderman, Chief Commodities Economist

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Today's Perspective Video: Markets Markets Selloff. But Have the Fundamentals Changed?

July 28 – Stock futures were mixed to firmer overnight, as relative calm continues in the Middle East and as the Federal Open Market Committee begins two days of monetary policy discussion. The VIX is trading near 19, while the dollar index trades near 101.5. Yields on 10-year Treasuries are trading near 4.63%, while yields on 2-year Treasuries are trading near 4.30%. WTI crude oil is trading near $81 per barrel after actually probing below $80 earlier in the session, while Brent trades near $87 per barrel. The grain and oilseed sector tried to bounce in the overnight session following yesterday’s active selloff, but it quickly succumbed to additional selling pressure as crude oil added to its losses, with the exception of corn that held modest gains based on tumbling crop ratings.

It’s Fed week once again, with the FOMC meeting today and tomorrow to discuss monetary policy. It is the second such two-day session chaired by newly seated Chairman Kevin Warsh, and the first since he testified on Capitol Hill about the evils of inflation. As such, observers will be watching closely to see how he puts those words into policy. Very few people anticipate that the Fed will hike its benchmark interest rate at this meeting, particularly after the recent decline in the consumer price index for June. However, few people expect the rate hike talk to die with that drop in inflation, particularly with energy prices rebounding in July as the Strait of Hormuz shut down once again. The primary question at hand is regarding how patient will Warsh be before acting by raising rates, and does he believe that such a rate hike will be effective in lowering inflation to the 2% mandate considering the reasons for the inflation that are tied to the Iran war? A rate hike cannot be ruled out tomorrow, simply because of the strength of conviction regarding inflation conveyed by Warsh in his Congressional testimony, but most observers are expecting that hike to come in September, with the market currently trading expectations for two hikes by December.

The United States again refrained from strikes on Iran overnight as President Trump gives “diplomacy a chance.” And Iran refrained from striking ships in the Strait of Hormuz as well, although few ships are comfortable taking the risk currently. Reuters reports that Oman has garnered the approval of other Gulf States to allow Iran to collect “voluntary” fees from countries using the Strait of Hormuz. The Omani proposal reportedly says that Iran would not have sole control of the voluntary fees, which would be modeled after the voluntary fees paid by shippers to use Asia’s Strait of Malacca. Those fees are collected by Indonesia, Malaysia, and Singapore to fund navigation, environmental protection, and search-and-rescue operations. The biggest difference is that ships don’t have to worry about getting shot at if they fail to pay the “voluntary” fees to utilize the Strait of Malacca. Iran’s desire of isolating the United States is slowly working, with the U.S. increasingly the only country willing to stand up to a bully whose appetite will never be satisfied until it has found a way to destroy the United States and Israel. That’s been its stated objective for the past 47 years, and these “voluntary” fees would help to fund it. That’s why it is more personal with the United States that Iran not have the means for developing nuclear weapons.

The Iran war now has stronger ties with the Ukraine war as well. Ukrainian President Volodymyr Zelenskyy is expected to meet with President Trump at the White House today after Ukraine hit an Iranian merchant ship in the Caspian Sea. It’s not the first time that Ukraine has hit ships in the Caspian Sea, displaying its long-distance strike capability, but it hinted that this strike was tied to intelligence that the vessel was transporting military equipment from Russia to Iran to support Iran in its war with the United States. In fact, Zelenskyy called the vessel a “warship” in a post on X. Iran has since threatened retaliation against Ukraine, which appeared to be giving aid to the United States. This represents a widening of the war, including Saudi Arabia’s recent strike against Iran-backed Houthis in Yemen. Israeli Prime Minister Benjamin Netanyahu is also expected at the White House today. He told reporters Sunday that the Iran war will end “when this regime is either toppled or its sufficiently weakened that it knows it has to end its nuclear program and has to change its course.”

USDA reports that the U.S. corn crop condition is rated 63% Good to Excellent this week, down 6 points on the week, down 10 points on the year, but down just 1 point from the five-year average for the week. The soybean crop is rated 63% Good to Excellent as well, down 3 points on the week, down 7 points on the year, but still 1 point above the five-year average for the week. The significant declines were largely in the Plains States where intense heat was seen over the weekend. That heat has now largely broken for the Midwest, with a showery pattern starting once again. My seasonally adjusted corn yield model dropped 3.5 bushels this week to 183.2 bushels per acre, while my soybean model fell 0.4 bushels to 53.4 bushels per acre. Both remain slightly above USDA’s July yield estimates, but those will be updated on August 12. Keep in mind that some models followed by fund managers do not use USDA’s ratings, and as such, their corn yields remain much higher yet at this point.   

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Perspective: Morning Commentary for July 28

July 28 – Stock futures were mixed to firmer overnight, as relative calm continues in the Middle East and as the Federal Open Market Committee begins two days of monetary policy discussion. The VIX is trading near 19, while the dollar index trades near 101.5. Yields on 10-year Treasuries are trading near 4.63%, while yields on 2-year Treasuries are trading near 4.30%. WTI crude oil is trading near $81 per barrel after actually probing below $80 earlier in the session, while Brent trades near $87 per barrel. The grain and oilseed sector tried to bounce in the overnight session following yesterday’s active selloff, but it quickly succumbed to additional selling pressure as crude oil added to its losses, with the exception of corn that held modest gains based on tumbling crop ratings.

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Arlan Suderman
  • Grains & Oilseeds
  • Energy
  • Dairy
  • Renewable Fuels
  • Cocoa
  • Coffee
  • Cotton
  • Sugar
  • Meats & Livestock
  • Forest Products

Perspective: Morning Commentary for July 27

July 27 – It was a quiet weekend for Iran, which investors interpreted as a sign that there’s still a chance for peace in the Middle East. Yet, Iran-backed Houthi rebels attacked Saudi Arabian oil facilities in the Red Sea, providing a reminder that risks remain significant. Even so, overnight market action again reflected sentiment that investors continue to read headlines through a filter of hope – desperately wanting to believe that peace is just around the corner. Commodity prices tumbled overnight while stock futures pushed higher, with the VIX slipping below 18 and the dollar index trading near 101.4. Yields on 10-year Treasuries traded near 4.65%, while yields on 2-year Treasuries traded near 4.32%. WTI crude oil is trading near $84 this morning, although that’s a couple of dollars off its session low, while Brent trades near $91 per barrel. The grain and oilseed markets were mostly weaker overnight as well, following crude oil prices lower, while also reacting to improving weather models for the Midwest as we approach the key crop development month of August.

Arlan Suderman
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  • Grains & Oilseeds
  • Energy
  • Dairy
  • Renewable Fuels
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  • Forest Products

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