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Perspective: Morning Commentary for July 27

By: Arlan Suderman, Chief Commodities Economist

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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.

Durable goods orders rose 0.3% month-on-month in June, falling short of analyst expectations of 1.7% growth. Yet, that was much better than the -4.0% posted in May, which was revised up from the -4.5% originally reported. Durable goods minus transportation orders rose 0.6% on the month in June, falling short of analyst expectations of 1.0% growth. That compared to an upwardly revised 1.8% growth in May, up from the 1.3% originally reported. Core capital goods orders provide insight into business sentiment. Those orders rose by a solid 0.9% on the month in June, matching analyst expectations. May core capital goods orders were revised to a robust 1.9% growth rate, up from the 1.6% originally reported.

Iran-backed Houthis hit oil installations belonging to Saudi Arabia along the Red Sea coast over the weekend in an apparent attempt to stop Saudi oil exports via that region. This comes on top of their declared blockade of ships doing business with Saudi Arabia, threatening them when they attempt to pass through the Bab el-Mandeb Strait. This comes after reports emerged last week that Iran had successfully air-lifted weapons and Revolutionary Guard commanders into Yemen recently on a flight disguised as transporting mourners who had attended the Khomeini funeral in Iran. The Houthi strikes followed a Saudi-led coalition attack on Houthi positions in Yemen on Friday and Saturday. Reuters reports that 11 commodity vessels passed through the Bab el-Mandeb Strait on Sunday, which is the lowest passage number in many months. Seven of those vessels were oil tankers, with three of them entering the Red Sea and four of them exiting it. Two of the vessels were the very large supertankers that cannot pass through the Suez Canal on the northern end of the Red Sea unless they lighten their load. The four vessels that exited the Red Sea yesterday were primarily hauling crude oil to China or Pakistan.

Less than 10 commodity vessels passed through the Strait of Hormuz over the weekend, despite the pause in strikes by both Iran and the United States. Seven passed through on Sunday, following just three on Saturday with their transponders turned off. Seven passed through on Friday, mostly exiting the Persian Gulf. Crude oil prices exploded higher early in the war on fears of energy shortages, but the shortages turned out to be less than feared as China slowed imports and refining capacity, while leaning on its massive reserves. There’s less emotion in the markets now than there was then, although we’re certainly not void of emotion. China’s behavior remains a key ingredient in determining how quickly shortages again become a major factor. It should be noted that Iran stated over the weekend that it has no interest in negotiations, although negotiations are actually reported to be taking place. It is my contention that Iran wants to do one of two things, and they’re not exclusive of each other. One would be to drag this war out beyond the U.S. midterm elections, hoping that the election results end up requiring President Trump to withdraw his military forces, and the second would be that it could prod President Trump into a ground war that Iran believes it could win.

Grain and oilseed prices tumbled in the thin overnight trade volume. Reasons given included a lack of Ukraine strikes on grain facilities or ships at Russia’s Novo port, although I’m seeing reports that Ukraine hit Russian grain facilities on the Sea of Azov. Extended weather models continue to trend better for Midwest crops as well, reducing fears regarding the health of this year’s corn and soybean crops, despite blistering heat developing in the Plains and western Midwest over this past weekend. Temperatures are expected to moderate dramatically over most Midwest locations over the next couple of days, although areas of the Dakotas will remain most at risk. USDA is scheduled to release its weekly crop ratings once again this afternoon, impacting yield models followed by the funds. China was back in the market for more soybeans again over the weekend, with total purchases now approaching 20% of its 25 million metric tons commitment for the 2026-27 marketing year.     

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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.

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