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Perspective: Morning Commentary for July 10

By: Arlan Suderman, Chief Commodities Economist

July 10 – The equity markets are quietly mixed this morning, while new life is popping into the commodity markets as commodity shipping risks escalate in the Kerch Strait and the Sea of Azov. The VIX is trading near six-month lows below 16 this morning, as Wall Street reflects a confident sentiment amid the turmoil. The dollar index is trading near 100.9. Yields on 10-year Treasuries are trading near 4.55%, while yields on 2-year Treasuries trade near 4.19%. WTI crude oil prices are trading near $72, while Brent trades near $76 per barrel. The grain and oilseed markets were pretty quiet and mostly weaker overnight, but new life shot into them to erase losses early this morning on rumors of problems in the Black Sea Region as the Ukraine war raises risks for commodities.

Prices for the energy and the grain and oilseed markets turned volatile this morning as U.S. trade desks were opening. Overall gains in the crude oil market were relatively limited, although trade was volatile for a while. However, we did see those gains sustained a bit more in the heating oil market – translated diesel fundamentals. Trade was also more animated in the grain and oilseed markets, with wheat prices leading the way higher – rallying 30 cents off the session lows in the Kansas City market. Corn, soybeans and all three wheat markets all posted gains ahead of the pause due to this active buying activity.

The Sea of Azov closed for commodity movement this morning, including the Kerch Strait, according to reports. It’s very early in this unfolding story, so we can’t say yet at this point the scope of the threat, but this was the primary concern that caused energy and grain and oilseed prices to surge higher when Russia first invaded Ukraine in February 2022. Roughly 10% of Russia’s crude oil exports pass through the Kerch Strait, while 30 – 35% of its wheat exports move through the Sea of Azov and the Kerch Strait. Russia is expected to account for more than 22% of global wheat exports this year. In fact, the global cash wheat price is generally set in the Black Sea.

Why the new risks? News reports suggest that a stepped-up effort by Ukraine to shut off Russian fuel flows to the war effort have resulted in 35 ships being hit by unmanned drones, etc. in the Sea of Azov out of 120 Russian ships operating in the region – 27.5% of Russian ships operating in the region. Many of these ships were believed to be transporting fuel to the Crimea Peninsula for the war effort, while others were believed to be part of Russia’s shadow fleet for selling sanctioned crude oil. This is on top of the successful drone attacks on refineries in Russia that I mentioned yesterday that turned Russia from being the number 2 world exporter of diesel fuel to an importer of fuel. The risk facing the market this morning is whether this will result in Russia stepping up attacks on grain ships departing Ukraine, since that fuels Ukraine’s economic engine? Russia has already negatively impacted exports with repeated attacks on Ukraine port infrastructure, but Ukraine continues to find ways to export grain. Will Russia now start attacking commercial ships leaving Ukraine? This morning’s market response is one of adding risk premium on the possibility, but that possibility is a bit more real this morning than it has been for a while.

The standoff continues in the Middle East, with additional U.S. strikes on Iran reported overnight. Hundreds of ships remain anchored in the Persian Gulf, afraid to traverse the Strait. However, daily reports indicate that shipment through the Strait of Hormuz ranges generally between 15 and 30 ships, allowing some energy, fertilizer and freight movement to pass. The United States encourages ships to pass along the Oman coastline, while Iran insists that all ships move along its coastline so that it can regulate who passes, and potentially charge tolls. Oman formally stated this week that it is opposed to ships being charged fees for using the Strait of Hormuz, which is a blow to Iran. However, Iran’s intimidation methods are still working. Reuters reports that 22 Japan-linked vessels left the Persian Gulf since Tuesday when three other ships were hit by Iran near the Oman coastline. It’s believed that these ships yielded to Iran’s wishes by following the prescribed route near the Iranian coast. Japan’s transport minister declined to comment when asked how safety has been ensured for these 22 vessels, siting security reasons, raising speculation on regarding whether it has paid tolls to Iran.

USDA releases its July WASDE crop report at Noon Eastern Time today. I covered my expectations for the report extensively in yesterday’s midday comments. USDA confirmed the sale of another 9.7 million bushels of soybeans to China this morning, so it is finally stepping up to the plate. It will be many months however before we know if its imports will exceed the estimated 15 mmt I currently see in USDA’s balance sheet for China. Otherwise, the focus is on forecast models that continue to remove heat for the Midwest for the key pollination period the remainder of this month. Yet, those improving weather models will be trumped by news from the Black Sea Region if the Kerch Strait is indeed closed long term. Even so, that’s more of a wheat issue than one for corn and soybeans.         

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Perspective: Morning Commentary for July 10

July 10 – The equity markets are quietly mixed this morning, while new life is popping into the commodity markets as commodity shipping risks escalate in the Kerch Strait and the Sea of Azov. The VIX is trading near six-month lows below 16 this morning, as Wall Street reflects a confident sentiment amid the turmoil. The dollar index is trading near 100.9. Yields on 10-year Treasuries are trading near 4.55%, while yields on 2-year Treasuries trade near 4.19%. WTI crude oil prices are trading near $72, while Brent trades near $76 per barrel. The grain and oilseed markets were pretty quiet and mostly weaker overnight, but new life shot into them to erase losses early this morning on rumors of problems in the Black Sea Region as the Ukraine war raises risks for commodities.

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

Perspective: Morning Commentary for July 9

July 9 – Stock futures were mixed overnight, following a volatile day on Wednesday as fighting intensifies again in the Middle East. Yet, the VIX is trading back below 17 this morning, while the dollar index trades near 101.0. Yields on 10-year Treasuries are trading near 4.56%, while yields on 2-year Treasuries are trading near 4.18%, after spiking to fresh 16-month highs on Wednesday. WTI crude oil is trading near $73 per barrel this morning, while Brent trades near $78 per barrel. The grain and oilseed complex was mostly weaker as Midwest weather forecasts again shift milder and wetter for the key corn pollination period later this month.

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

Perspective: Mid-Day Commentary for July 8

July 8 - Headlines regarding the Iranian war continue to capture the focus of investors on Wall Street today, following President Trump's comments late yesterday that the ceasefire is effectively over following Iran's persistent attacks on ships crossing the Strait of Hormuz. The United States ended the waiver on Iranian oil sales, and then hit Iran with a wave of military strikes overnight. President Trump indicates that more strikes may occur tonight, keeping tensions high in the region.

Arlan Suderman
Arlan Suderman
  • Grains & Oilseeds
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