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Perspective: Morning Commentary for June 30

By: Arlan Suderman, Chief Commodities Economist

June 30 – Today marks the end of the month and the end of the fiscal quarter. Stock futures were mixed to weaker this morning, with traders now focused on Thursday’s June jobs report for direction, while monitoring the ongoing peace talks between Iran and the United States as traffic picks up again in the Strait of Hormuz. The VIX slipped back to a one-week low below 18 this morning, while the dollar index traded near 101.4. Yields on 10-year Treasuries are trading near 4.39%, while yields on 2-year Treasuries are trading near 4.13%. WTI crude oil is again firmer today as it puts a bit more risk factor back into prices, with the market trading near $71 per barrel, while Brent trades near $73 per barrel. The grain and oilseed markets were mixed overnight ahead of today’s USDA quarterly grain stocks and planted acreage reports.

Movement through the Strait of Hormuz nearly came to a halt over the weekend after Iran launched drones against ships on Friday and Saturday. The U.S. military then hit at least 10 targets in Iran, seeking to take out launch zones, communication centers, drone storage, etc. The two sides then agreed to halt hostilities again while the peace talks resumed, and ships started moving again. Two dozen commodity ships were seen passing through the Strait yesterday, with a similar pace seen thus far today, including some super tankers heading into the Persian Gulf. That’s a significant development, that we would see supertankers moving through the Strait of Hormuz into the Persian Gulf to pick up loads, as opposed to just ships trying to get out. This week’s tanker movement should translate into roughly 11 million barrels of crude oil passing through the Strait per day. Saudi Arabia’s pipeline to its west coast on the Red Sea is believed to be transporting roughly 6 million barrels per day. The combination is close to rebalancing global supplies in light of elevated U.S. exports combined with China’s lower import pace since the war began. When China will resume imports is yet unknown. Yet, that explains the drop in crude oil prices if you don’t feel a need for a risk premium to be reflected. The market is saying that it believes the United States will respond appropriately each time that Iran tries to control the Strait of Hormuz.

China is just fine with the United States tying up its military assets in the Middle East – at least a significant share of them. It does still have assets in other places in the world, and that proved to be an irritation for China over the weekend. The United States conducted joint military drills with the Philippines near Scarborough Shoal over the weekend, demonstrating its commitment to keeping the Indo-Pacific free for global commerce. Scarborough Shoal is about 145 miles off the coast of Luzon, which is the main island of the Philippines in the South China Sea, while 575 miles away from Mainland China. Yet, China has been trying to claim the South China Sea as its domain based on alleged historic rights going back to the 13th century. Both countries currently lay claim to Scarborough Shoal. China responded to the weekend activities by conducting combat readiness military patrols of its own today, including both its naval and air force. It’s estimated that $5.3 trillion in commercial goods pass through the South China Sea each year, making it an essential trade route that accounts for anywhere from a quarter to a third of global trade. The Philippines and Japan fear that allowing China to take Taiwan would give it a launching point to tighten its control over the South China Sea, from which it could further expand military operations deeper into the Indo-Pacific. China installed a floating platform at the entrance of Scarborough Shoal in late May, but it has since removed it.

The major stock indices are trading just below record highs as we close out the month, but June has been rough for many of the commodities as investors assume that the war with Iran is over, and that commerce will return to “normal” through the Strait of Hormuz, reducing inflation risks. The US 2-Year Breakeven Inflation Rate dipped below the mandated 2% level to close out the month. Historically, there’s been a relationship between inflation expectations and commodities. Granted, high commodity prices can create inflation, as in soaring energy prices during the Iran war, but investors also have shown a tendency to want to own commodities in times when inflation is expected to rise for other reasons as well, elevating their value. Our StoneX Commodity Tracker shows a correlation coefficient of 0.80 over the past 10 years between our basket of 27 commodities and the US 2-Year Breakeven Inflation Rate, while that correlation for the grain and oilseeds in the basket is 0.78. The market currently sees lower inflation risks going forward, and thus the negative money flow toward the commodities.

The grain and oilseeds could rally contrary to that macro money flow tendency if they had a story to counter it, but they do not currently. USDA’s balance sheets are well supplied, and the weather forecast is currently favorable for Midwest crop development. USDA could have a surprise up its sleeve in one of today’s reports to change that dynamic, but otherwise it’s going to be difficult to go against the current money flow trend until / unless inflation expectations turn higher again. The focus after today will otherwise largely be on weather and crop ratings.       

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Perspective: Morning Commentary for June 30

June 30 – Today marks the end of the month and the end of the fiscal quarter. Stock futures were mixed to weaker this morning, with traders now focused on Thursday’s June jobs report for direction, while monitoring the ongoing peace talks between Iran and the United States as traffic picks up again in the Strait of Hormuz. The VIX slipped back to a one-week low below 18 this morning, while the dollar index traded near 101.4. Yields on 10-year Treasuries are trading near 4.39%, while yields on 2-year Treasuries are trading near 4.13%. WTI crude oil is again firmer today as it puts a bit more risk factor back into prices, with the market trading near $71 per barrel, while Brent trades near $73 per barrel. The grain and oilseed markets were mixed overnight ahead of today’s USDA quarterly grain stocks and planted acreage reports.

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

Perspective: Morning Commentary for June 29

June 29 – Stock futures moved cautiously higher overnight, as we approach the end of the month, and the end of the fiscal quarter. More skirmishes were seen between Iran and the United States over the weekend, but traders chose to focus on the fact that yet another agreement had been reached to halt hostilities. It’s a holiday shortened week of trading on Wall Street, with the markets set to close on Friday as America celebrates its 250th birthday. Ahead of that, we will get the June jobs report on Thursday morning. The VIX is trading near 18 this morning, while the dollar index consolidates near 101.2. Yields on 10-year Treasuries are trading near 4.38%, while yields on 2-year Treasuries are trading near 4.11%. WTI crude oil is trading just above $70 per barrel this morning, while Brent trades below $73 per barrel. The grain and oilseed markets were mostly weaker ahead of tomorrow’s big USDA quarterly grain stocks and planted acreage reports, with the exception of firmer hard wheat prices.

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

Perspective: Mid-Day Commentary for June 26

June 26 - Stocks trended firmer throughout the morning, moving into positive territory by mid-morning. That allowed the VIX to slip back to trade near 19 by midday, while the dollar index traded near 101.2. Yields on 10-year Treasuries are trading near 4.38%, while yields on 2-year Treasuries are trading near 4.09%. WTI crude oil is trading near $69, while Brent trades near $72 per barrel, despite increased tensions in the Strait of Hormuz. Wheat prices remain under pressure, led by double-digit losses in Kansas City, while corn and soybean prices are slowly attempting to crawl back into positive territory at midday, combined with some renewed buying in the edible oils for biofuel.

Arlan Suderman
Arlan Suderman
  • Grains & Oilseeds
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