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Perspective: Morning Commentary for July 7

By: Arlan Suderman, Chief Commodities Economist

July 7 – Two more ships were attacked exiting the Strait of Hormuz, but the market response has been little more than a yawn at this point. We saw a bump in crude oil prices, but crude oil is still near pre-war levels and the VIX still near multi-month lows. Stock futures are steady to mixed this morning, although the Dow Jones Industrial Average is poised for yet another possible record high today. The VIX is trading below 16 this morning, while the dollar index is trading near 100.9. Yields on 10-year Treasuries are trading near 4.50%, while yields on 2-year Treasuries are trading near 4.14%. WTI crude oil prices are trading near $69 per barrel, while Brent trades near $73 per barrel. The grain and oilseed complex traded mixed to firmer overnight, with wheat prices leaning weaker while soybeans leaned a bit firmer on Chinese buying.

A crude oil tanker was hit by an unknown projectile believed to be from Iran late on Monday as it exited the Strait of Hormuz. The ship was located 8 nautical miles east of Limah, Oman traveling south when it was hit. The strike sparked a fire, but no casualties were reported and the ship remained seaworthy. The incident was reported by the United Kingdom Maritime Trade Operations office. That was followed by another attack on a liquified natural gas carrier in nearly the same location early today. The second vessel is owned by Qatar’s state-owned shipping company Nakilat. It was reportedly traveling with its transponder turned off. That’s ironic, since Qatar is hosting the current round of negotiations. A second LNG tanker that had just taken on a cargo at Qatar turned around and was reportedly traveling in circles, afraid to pass through the Strait. A Japanese-flagged supertanker and another Singapore flagged ship chose to follow the route along Iran’s coast to pass through the Strait.

President Trump arrived in Turkey for the NATO Summit this morning. This will surely be a topic of conversation at the summit. It’s been reported that several key European countries have resolved that they will have to acquiesce to Iran and start paying fees for passage through the Strait, while President Trump will likely make a strong case for standing up to Iran, rather than yielding to it. President Trump is frustrated that much of the rest of the world is tired of being bullied by Iran, but reluctant to stand up to it. Meanwhile, I would expect that we will see another U.S. strike on Iran soon, now that we have new targets. U.S. intelligence surely has mapped new launch locations following these strikes that they can hit. President Trump does not want the war to escalate ahead of the midterm elections, and Iran knows that, but he also knows that he cannot appear weak by not responding. I will be shocked if he does not respond and respond soon, as has been his pattern.

Meanwhile, the market response – or lack thereof – speaks volumes about how investors see this war. They’re basically desensitized now to the headlines. They expect the status quo to continue, which means that commerce will find a way to move through the Strait. The markets care not whether tensions remain high, but they do care on whether trade is occurring for critical energy and fertilizer inventories through the Strait. That is happening, and investors have seen little at this point to indicate that the status quo is going to change. Energy and fertilizer supplies are assumed to be adequate until proven otherwise in the eyes of the markets.

Grain and oilseed prices surged on Monday, with traders taking on a similar sentiment toward the Ag commodities – assuming that weather and/or China will tighten supplies. The weather models are very split again this morning, with the normally reliable European model even increasing the Midwest heat risk a bit. Yet, this model has had an unusual hot bias this summer that has thus far proven to be wrong. Our partners at Commodity Weather Group pointed out this morning that the more skilled models are particularly far apart in their outlook for the 11- to 15-day forecast, with the European Ensemble’s being the hottest of them. In fact, the European model forecast for the July 7 – 21 period leans among the hottest on record for the period, which would correspond with the bulk of this year’s corn crop going through pollination. CWG looked at the forecast through a) tropical forcing/global wind, b) atmospheric teleconnections, and c) upper-level pattern analogs. It found better support for the more moderate WxNext2 model in two of the three above areas and leans closer to it in its forecast.

Cash market sources state this morning that China was buying yesterday, although USDA has not yet confirmed it with its flash sales reports. Anywhere from 5 to 10 cargoes of soybeans were believed to have been purchased. That’s not a surprise. It’s a long way from 25 mmt, but it’s a start, and it corresponds with the timing of when we would expect China to start buying. I have no doubt that China will buy soybeans and other Ag products. The only question is, will it buy more than what has already been factored into the balance sheets, and it will likely be months before we know whether that is the case. That said, Chinese buying is better than it not buying.   

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Perspective: Morning Commentary for July 7

July 7 – Two more ships were attacked exiting the Strait of Hormuz, but the market response has been little more than a yawn at this point. We saw a bump in crude oil prices, but crude oil is still near pre-war levels and the VIX still near multi-month lows. Stock futures are steady to mixed this morning, although the Dow Jones Industrial Average is poised for yet another possible record high today. The VIX is trading below 16 this morning, while the dollar index is trading near 100.9. Yields on 10-year Treasuries are trading near 4.50%, while yields on 2-year Treasuries are trading near 4.14%. WTI crude oil prices are trading near $69 per barrel, while Brent trades near $73 per barrel. The grain and oilseed complex traded mixed to firmer overnight, with wheat prices leaning weaker while soybeans leaned a bit firmer on Chinese buying.

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

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.

Mike Castle
Mike Castle
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