Peace Hopes Fade Again: Markets Caught in the Crossfire of Volatility and Fundamentals

Friday’s optimism of a peace deal and the Straits of Hormuz re-opening were quickly dashed as weekend trouble in the Straits caused a further closure ending with the US seizing an Iranian ship trying to sail out. Crude reversed with $5 a barrel gains which added to support for corn and beans while poor wheat conditions helped wheat rebound back over $6. While the markets have been largely range bound for April, the daily volatility makes a trend impossible to plan for and market around. Negotiations between the US and Iran scheduled for today will drive prices on Tuesday as the US Midwest is turning drier for planting but cooler into late April. There is enough bullish news to support higher ranges but not breakouts to the March highs.

News and Notes:

- A drier and cooler forecast for most of the Midwest is expected in the next 7 to 10 days which will help NCB planting but also keep emergence on the slow side. Right now, the dry weather is bigger than the cool weather for the Corn Belt.

- The daily chart for December corn is on Page 2 and shows the technical resiliency of the market at the 50-DMA (green line) and the comfortable range from $4.70 to $4.80 that is defined on top at the 20-DMA (red line) and the bottom at the 100-DMA (blue line). A wetter forecast or another crude oil run above $90 would probably be enough to test $4.85 while an expected timely completion of US planting would be the catalyst to break below $4.70. Both November beans and December corn futures prices are not fully reflecting the bearish fundamental picture, which may the unwanted issue that encourages more US planted corn acres.

- This afternoon’s crop progress and condition report was in line with estimates with 11% of the corn crop and 12% of the bean crop planted. The bullish number is the report was another fall in wheat crop conditions by 3% to 30% G/E. With the US Southern and Western Plains forecast arid for the next week, the conditions will continue to deteriorate as freezing temperatures over the weekend will not help an already stressed crop. If the US wheat crop is terrible and the flow of wheat exports out of the Straits of Hormuz stays shut off, wheat has a bullish story into late April.

- Friday’s cattle trade featured a limit down move in feeders and large losses in live cattle futures as USDA Sec Rollins was speaking in Texas and rumors circulated that she was announcing the Mexican border would re-open for feeder imports. But as most rumors, this ended up being wrong. What she actually spoke about was that multiple new cases of Screwworm virus had been found within 200-miles of the border, and it would remain closed for the foreseeable future. There is no industry chatter that a vaccine has been found which will keep support under the cattle markets on any breaks.

- Please take some time to listen to the latest edition of Helena’s FieldLink podcast where seed treatments and the markets are the topics of conversation.

- As expected after the Straits closure news, the energy markets were higher but not as nearly as bullish as we would have seen a month ago. The world is adjusting to both higher gas prices and finding alternate pipelines and methods of transportation for Middle Eastern crude. Crude traded over $10 a barrel higher on Monday than Friday’s low which continues to show the headline driven volatility we should expect until a lasting peace deal is signed. 

The noise of the Straits opening or closing is impossible to ignore but the world markets are reacting less bullishly to bad news from the region. Breaking down the next month week by week is difficult because other than the US planting window, the rest of the events will be directly influenced by Iran/US negotiations. If no peace deal is reached and the cease fire ends this week, there is a strong chance President Trump will again postpone the mid-May scheduled trade meeting with China. President Trump wants the Straits open before they meet. If the closure runs into May, fertilizer prices will not be going down in time to help anybody this season and begin to cut into southern hemisphere purchase plans. The calendar is becoming tighter by the day.