War Premium Fades: Markets Look Past Blockade as Fundamentals Take Control

Despite another volatile and higher opening in the energy markets on Sunday night, the overnight gains in corn and beans faded during the day as crude oil prices fell back from their opening highs. The naval blockade ordered by President Trump was greeted with more concern and apprehension, but other Middle Eastern OPEC+ countries have taken steps to increase pipeline flows and make the Straits less important in world energy flows by the day. Wheat was able to maintain its gains on increasingly dry US Plains forecasts and the expectation of another week of condition declines. As US planting moves along and the world traders become less worried about the war with Iran, the return to grain and soy fundamentals and lower energy prices will have a bearish tone as we trade deeper into April. 

News and Notes:

- Thank you for everyone’s weather related planting updates as areas of the WCB, NCB and ECB are the wettest since 2019 while other sections less than 150-miles away have not received nearly as much recent rain as some areas. While there is always concern when your farms are too wet to plant and you get behind schedule, the breakthroughs in technology and speed will not allow the markets to add too much prevent plant premium for another 4-6-weeks. SA weather is not currently a market mover, but as Brazil’s safrinha corn crop pollination window gets closer, those forecasts will take on increased importance.

- The daily November bean chart is on Page 2 and shows the continued daily dance on the 20-DMA (red line) as long positioned traders have defended breaks to support, but with nearly 1.2 BBU of long positions, their patience is being tested after a failure to make new highs for the move ($11.74 1/4) for the last month. A multi-day or weekly close under the 20-DMA will bring in a break to the 50-DMA (green line) at $11.31 ¼. Today’s close was $11.48.

- President Trump addressed the farm communities concern over an extended run of higher fertilizer prices in a Saturday tweet. Farm groups have been lobbying for more help and a way to keep prices lower and President Trump mentioned they are closely watching “the fertilizer monopoly” to keep price gouging from occurring.

- Through the first 8-hours of the Straits blockade stopping all Iranian ship traffic, no incidents have been reported but the ship count remains very light. If the blockade works and the rest of the world finds ways to offset the impact of the traffic through the Straits, the markets and the world will go back to trading a peacetime strong economic outlook.

- China has long supported Iran’s government and China remains one of the harder hit by the lack of Iranian oil exports. China imports 20-25% of their oil from Iran and are in a tough position. With President Trump still set to meet with Chairman Xi for a continuation of the postponed trade talks in a month, news about the cancelation, postponement or going ahead with the meeting will be key for the bean markets.

Knee-jerk reactions on recent Sunday night openings have become so common place that it is now part of normal market behavior. And like previous Monday trades, the initial reaction of higher energy prices and lower equity prices reversed rather emphatically and proved again that our markets are looking past the current headlines to the potential landscape in another week or month. As the corn and bean markets have separated themselves from still high front month crude oil prices, being scared (hopeful) of higher prices pushed by $100 crude are not materializing as hoped. To point, since the bombing started on February 28th, front month crude prices are up $25 (38%), November beans up 21-cents (1.9%), December corn up 1 ½-cents (1/3 of a %) while the major US equity indexes are down less than 2% and after today’s rally, and 6.5% +/- above the March lows. There was no analyst that expected this type of price behavior 6-weeks into the war and with today’s naval blockade of the Straits, it appears the bullish war/energy impact on corn and beans is ending. Wheat has a dry weather story, while corn and beans have a good planting outlook story. If the market further extracts war premium, rallies over the next month will be hard to get and should be sold.