Grain and livestock futures opened lower on Thursday, May 7, as market participants responded to falling crude oil prices and ongoing speculation about the Iran conflict.
The recent downturn in grain markets is tied to declining crude oil values and hopes that tensions with Iran may soon ease. Darin Newsom, senior market analyst for Barchart, said he doubts a peace accord or the reopening of the Strait of Hormuz is likely. “It makes for nice headlines and as we’ve talked about before these markets are all driven by headlines. The reality is the war isn’t somehow mysteriously all over or miraculously completely over. I’m sure there’s still missiles firing. I’m sure there’s still bombs going off. And so what we’ll find out most likely over the weekend, because that’s when these things tend to happen, is that there is no peace, that there is no ceasefire,” Newsom said.
Funds have been liquidating positions in grains due to risk concerns but Newsom indicated this trend might not last long-term. He explained: “So, there’s no real magic level that these markets come down to. What they’re going to have to do is come back to where there is some intrinsic value support, some fundamental support.” He also pointed out weak basis levels across the grain sector which could lead to further liquidation.
Attention may shift next week toward a meeting with China regarding potential agricultural purchases. President Trump has made optimistic statements about U.S.-China relations boosting demand for agricultural goods; however, Newsom remains skeptical about significant outcomes from such talks: “Yes, I would expect the grains sector…to rally next week. Is there going to be anything really come out of this? No…But as far as U.S. ag is concerned, nothing’s going to change.” Soybeans have already seen price increases based on expectations of Chinese demand but much of this premium comes from strong soybean oil demand linked with biofuels.
Soybean processing has been robust due in part to record crush margins associated with new Renewable Volume Obligation blending levels into biofuels—supporting soybean oil prices even amid fluctuating energy costs. Diesel fuel prices remain high due in part to tight inventories; according to Newsom: “We just ran a study showing just the one-month correlation [between diesel fuel and bean oil] is up near 100%.” Export demand trends also show corn exports up compared with last year while soybean sales are down 23% year-over-year.
Wheat markets experienced corrections after reaching two-year highs earlier this season despite lower production forecasts for hard red winter wheat in regions like Oklahoma; speculators previously bought wheat on headline news but money appears now be flowing out of those contracts.
Cattle futures were also lower despite firm beef demand at retail—a trend Newsom believes may eventually shift if consumers face sustained higher gasoline prices: “You know…the choice has to be made between fuel or high priced beef…we haven’t really seen it yet…but I still think it’s coming,” he said.
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