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By: Arlan Suderman, Chief Commodities Economist
May 28 - Both the S&P and the Nasdaq stock indices hit record highs this morning following a news report that a memorandum of understanding had been reached between Iranian and U.S. negotiators, although approval has not yet been given by the leadership of both countries. Stocks have since pared their gains. Crude oil prices fell several dollars per barrel on the headline, and they have also pared their losses in the wake of that announcement. The VIX is trading near 16 at this hour, after falling to its lowest level since early February, while the dollar index trades near 99.0. Yields on 10-year Treasuries are trading near 4.46%, while yields on 2-year Treasuries are trading near 4.03%. WTI crude oil prices are trading near $90 per barrel at midday, while Brent trades near $94 per barrel. Corn and soybean prices continue to post modest gains as they follow crude oil's lead again today, while wheat prices post modest losses.
The headlines again read that Iran and the United States have reached an outline agreement to extend the current ceasefire another 60 days while they continue to negotiate those issues for which they are far apart - namely Iran's nuclear enrichment program. The agreement still must be approved by the leaders of both countries. Those headlines suggest that the agreement opens up the Strait of Hormuz to all traffic for free movement through the period. Only time will tell if it is real this time.
A major U.S. farm advisory service reportedly advised its members to lift their corn hedges, and then repeated rumors inside of China that it may be lifting import tariffs on US corn. This possibility is nothing new. I've been speculating for several months that we could see China buy corn this year. Let's make one thing clear - China doesn't need to buy U.S. corn, but it does have room for corn in its reserve. Any purchases it makes will be more about politics than about economics. But it did commit to buying $17 billion in Ag products per year over the next several years, above and beyond the soybean purchases it committed to in October, and corn is an attractive option. Yes, the wheat harvest has begun in China, with more wheat than normal expected to grade feed quality in the North China Plain due to recent persistent rains, but this does not look to be a repeat of 2023. U.S. corn is relatively competitive into China currently, as opposed to soybeans which are much more expensive than South American alternatives. And China's reserve supplies have declined enough in recent years to provide some room. China may also be hedging its bets that we'll see higher prices a year from now if fertilizer shortages due to the war in Iran result in lower global production. Again, we have no confirmation that it has purchased any corn, or even that it will, but I continue to see that as a likely option.
New sales of single-family homes dropped to an annual rate of 622K in April, down from 663K in March, and down from 701K the previous year. The seasonally adjusted estimate of new homes on the market at the end of April stood at 489K units, up modestly from 481K in March, but down from 500K the previous year. This represents an estimated 9.4 month inventory of homes at the current sales rate, up from 8.7 months in March and up from 8.6 months a year ago. The median sale price rose to $422,500 in April, up 9.3% on the month, and up 2.2% from the previous year. The average sales price in April was $508,800, up from $505,200 in March, but down from $514,300 a year earlier.
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Grain funds are trading privately built corn yield models that run well above the U.S. Department of Agriculture’s own estimate, and that gap is driving money into and out of the market. Understanding why those models diverge explains more about the corn and soybean price swings than the weekend headlines the algorithms chased.
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.
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.
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