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Perspective: Morning Commentary for July 6

By: Arlan Suderman, Chief Commodities Economist

July 6 – Stock futures were mixed, but generally well supported overnight as ships flow through the Strait of Hormuz and increased oil supplies pressure energy prices. Wall Street continues to look at the economy through eyes of optimism. The VIX is trading near 16 this morning, while the dollar index trades near 101.0. Yields on 10-year Treasuries are trading near 4.47%, while yields on 2-year Treasuries are trading near 4.12% as the yield curve shows signs of steepening once again amid the lower energy prices. WTI crude oil is trading near $69 per barrel after closing the pre-war gap on the charts, while Brent trades near $72 per barrel. The grain and oilseed markets surged higher in thin overnight trade volume as value buyers jumped into the market.

Has the oil shortage turned into an oil glut? Perhaps in the near term it has, as the opening of the Strait of Hormuz allows ships trapped in the Persian Sea to move again, dramatically increasing the oil inventory that’s currently on the water in transport. Meanwhile, Saudi Arabia continues to pump oil through its pipeline across the peninsula to the Red Sea, while Chinese imports remain constrained and U.S. exports are still elevated. OPEC+ will add another 188K barrels per day to the supply next month. The United Arab Emirates is setting output records as well. Keep in mind that we are still not in a normal production / consumption cycle yet, but the increased supplies relative to demand continues to keep pressure on oil prices, with WTI closing the gap created when the war with Iran started on February 28. That conflict is still far from over, but the market is focused on the above. Lower energy prices reduce inflation risks and increase prospects for economic growth, and that’s fueling the markets overall.

Negotiations continue with Iran in search of a long-term peace agreement. I remain skeptical that Iran’s Revolutionary Guard wants a peace agreement, but President Trump is pushing hard for one, and the IRG will no doubt continue to play the role of negotiating while also continuing to “poke the bear” with periodic disruptions to flow in the Strait of Hormuz. Iran’s proxy groups are also still active in the region, with the Houthi’s stepping up their activity over the past several days, on top of the ongoing battles with Hezbollah. President Trump has indicated that he’d like to move back to inserting himself in the Ukraine war negotiations, but he’s also closely monitoring China in the Indo-Pacific. China continues to antagonize Taiwan, and one of its nuclear-powered submarines fired a missile into the Pacific today, drawing criticism from Japan, Australia and New Zealand regarding its expanded military reach in the region. China’s missile launch came just hours after Australia and Fiji signed a major defense alliance. China continues to push its military influence in the direction of island nations in the South Pacific, raising concerns. It may feel more freedom to do so while the United States military is focused on the Middle East.

USDA will release updated domestic and global supply and demand balance sheets for the major crops on Friday. Those balance sheets will include adjustments for acreage as reported on the June 30 planted acreage reports from USDA. They’ll also account for changes in stocks reported on that same day. Otherwise, this is not expected to be a significant report. USDA’s WASDE team doesn’t like to adjust current year yield forecasts until USDA NASS gives it statistical reason to do so starting with the August report. We’ll likely see small upward tweaks in South American corn and soybean production, but market-moving surprises are not expected. Of course, that’s what makes them surprises. That said, the July report itself is not known for being a major report.

So why the big surge in buying in the grain and oilseed complex overnight? That was the big question of the morning. First, it’s important to note that the June 30 to July 4 period is known for reversals in the grain and oilseed markets. Those reversals historically were typically tied to some combination of surprises in the June 30 stocks and acreage reports and / or a flip in the weather pattern ahead of corn pollination and pod set in the Midwest. USDA’s June 30 reports provided a surprise cut in winter wheat acreage and a surprise downward adjustment in corn stocks that likely suggests that USDA overstated the size of last year’s corn crop. But the money flow turned positive for products that lacked bullish news as well, stimulating chatter of possible Chinese buying. One noted weather model intensified its call for hot dry conditions for the Midwest in July over the weekend, stimulating additional buying in the grain and oilseed complex overnight, even though that model has run counter to past strong El Nino analog patterns. But just like how money flow on Wall Street has chosen to lean toward the optimistic throughout the Iran war, so is now the money flow in the Ag commodity sector. I can build a bullish case for corn and soybeans if China keeps its commitment to buy 25 mmt of US soybeans plus another $17 billion in other products, especially if weather also provides some problems, but I can also build a very bearish case if China falls short of its commitments, as it has a habit of doing, and if this El Nino produces trend or higher yields as in the past. But in the meantime, I will not stand in the way of money flow momentum.   

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This material should be construed as market commentary and represents the opinions and viewpoints of the author, and does not reflect tailored advice associated with any specific account.


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Perspective: Morning Commentary for July 6

July 6 – Stock futures were mixed, but generally well supported overnight as ships flow through the Strait of Hormuz and increased oil supplies pressure energy prices. Wall Street continues to look at the economy through eyes of optimism. The VIX is trading near 16 this morning, while the dollar index trades near 101.0. Yields on 10-year Treasuries are trading near 4.47%, while yields on 2-year Treasuries are trading near 4.12% as the yield curve shows signs of steepening once again amid the lower energy prices. WTI crude oil is trading near $69 per barrel after closing the pre-war gap on the charts, while Brent trades near $72 per barrel. The grain and oilseed markets surged higher in thin overnight trade volume as value buyers jumped into the market.

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

Perspective: Mid-Day Commentary for July 2

July 2 – It’s a tale of two extremes on Wall Street at midday, with the lower rate expectations following this morning’s ugly jobs print providing tailwinds to drive the Dow Jones to another fresh all-time high and remain in the green (+0.5%) at the time of writing, while the ugly selloff in the tech sector is driving the Nasdaq sharply lower (-2.1%), leaving the S&P caught in the middle (-0.6%). The VIX remains relatively muted, up from the morning lows but still on the low side of recent ranges as it hovers around 16.7. The dollar continues to hang in the red amid the aforementioned shift down in rate expectations, though it has bounced from its lows as it currently hangs around the 100.8 level. Treasuries are mixed at midday as well, with 10-year yields up on the day to 4.48% while 2-year yields are down on the day to trade near 4.13%. Crude oil has rebounded through the session as well, with nearby WTI now slightly in the green around $68.20 while nearby Brent remains slightly in the red near $71.20. The ags have lost steam through the session, now trading largely mixed after erasing morning gains.

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Perspective: Morning Commentary for July 2

July 2 – All eyes are on the labor market to start the day, with the Friday holiday pushing June’s Non-Farm Payrolls report up to the same day, and release time, as weekly Jobless Claims. It was a very ugly headline print for Non-Farm Payrolls with only 57k jobs added in June, effectively only half of the expected 110k. To make matters worse, both April and May were revised lower by 31k and 43k, respectively, to now show a combined 277k jobs added instead of 351k. Despite this negativity, the unemployment rate dropped to 4.2% from the 4.3% seen from March through May, representing the lowest headline unemployment reading since June of last year. However, the drop was largely a function of a collapsing labor force participation rate, falling 0.3% month-over-month to sit at only 61.5% in June, a low not seen since March 2021 during the pandemic recovery. Average hourly earnings came in as expected, up 0.3% month-on-month and 3.5% year-on-year, as did the average workweek at 34.3 hours.

Mike Castle
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  • Grains & Oilseeds
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  • Coffee
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