Grain and hog markets ended mostly lower on Tuesday, with cattle futures finishing mixed. The drop in grain prices followed the removal of war premiums, as traders responded to developments suggesting a possible ceasefire or peace deal between the United States and Iran.
Alan Brugler of A&N Economics, Inc. said the market is cautiously optimistic that a ceasefire or peace agreement may be near. “The Iranians tried to pull a fast one and put some mines into the shipping channels because that reinforces the need to pay them. The U.S. countered that by taking out the boats and some of the missile structures. Both of those would be seen as moderate moves, not something that’s going to break the ceasefire,” he said.
Crude oil prices were sharply lower overnight, putting early pressure on grain markets before they recovered from their lows. “WTI crude oil backed off. That’s negative for ethanol and biodiesel to the degree that we’re trading energy molecules in those grains,” Brugler said.
Brugler also addressed potential impacts if a 60-day ceasefire leads to reopening of key shipping lanes: “I think you would see some removal of some of the risk premium… If it looks like Iran is going to open the Strait, let some of the energy supplies move, then some of that hot money is going to leave.” He added that while infrastructure repairs may take time, fund liquidation could cause crude oil prices to drop further even without an immediate supply increase.
On inflation trends, Brugler noted lag effects: “And things have to percolate through the economy—your higher transportation cost. It doesn’t show up in your retail price right away and sometimes it’s going to be slow to come down.” He explained central banks often focus on core inflation excluding food and energy due to volatility in those sectors.
Despite fund liquidation risks for commodities like bean oil and corn, Brugler pointed out ongoing support from global biofuels demand: “Bean oil is an interesting situation because you do have the RFS mandate… Bean oil is going to continue to be a major component here for the renewable diesel industry.”
Regarding weather premiums, Brugler said recent rains contributed post-holiday weakness but forecast temperatures are not yet concerning for crop yields: “Because… average temperatures are not, you know, above 86 degrees where it starts to influence your yield potentials for corn.” Fast planting pace has also kept speculative traders optimistic about yield potential despite fertilizer shortages being only a minor factor nationally.
Cattle futures absorbed bearish data showing increased placements but held firm overall. Brugler commented on fund positions tied closely with cattle cycles: “We got a bearish report, really didn’t break the market today… But I do notice that boxed beef was pretty firm today.”
Lean hog futures were lower except for June contracts amid contra-seasonal movement attributed partly to higher pork inventories reported by USDA Monthly Cold Storage Report. Still, Brugler believes conditions are oversold: “It’d be a great place to put in a bottom… So, jury is still out but I personally would not be very comfortable adding new short positions if I was already short,” he stated.
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