Peace has been declared in the Middle East, at least at the time of writing, and it has hit oil futures. It remains to be seen how grains and oilseeds will react, with wheat and soybeans already having come off highs.
The announcement on Monday morning that the US and Iran have reached a peace deal is almost overtaking the Socceroos victory at the start of the weekly news cycle. There are plenty of details to come but the key aim of opening the Straight of Hormuz appears to have been achieved.
The peace announcement saw Brent Crude Oil futures fall to $US83.5 per barrel, it’s lowest levels since the conflict began in late February (figure 1). We can see that there remains plenty of uncertainty, with oil still sitting 30% stronger than pre-war levels.
Croppers will be hoping that the end of the conflict will see inputs costs ease, although it might take some time to flow through to local markets.
There have been other things in the news, but the World Agricultural Supply and Demand Estimates (WASDE) Report was released last week. There was little change in the initial new season projections which were released in May for wheat, oilseeds or corn.
Wheat markets seem to have become comfortable with the lower supply expected out of the US this year. Figure 1 shows that since the initial shock of lower US production, wheat has eased in the US and now sits just above $300/t.
Wheat prices are above last year’s levels, which fits with lower production, but it’s not much of a price rise. US harvest is underway, with 11% having been taken off as of June 7, and it will ramp up quickly now, weather permitting. Growers will have some tough decisions, with weak prices being played off against cash flow.
Locally prices have moved sideways over the last few weeks. Follow up rain is forecast for most of the east coast cropping zone this week. It is hard to see cereal prices weakening much further, without a fall in international values.
Canola prices remain the shining light for croppers, with values in futures and physical remaining strong. Canola seems to be defying some of decline in soybean values, they may have more trouble if crude continues to ease.
What does it mean?
Some of the uncertainty might be about to clear out of the market, if a peace deal can be adhered to. Not that we’ve seen a lot of grain and oilseed commodity volatility due to the conflict in Iran. The focus has remained on production, with price upside reliant on some northern hemisphere production issues for the time being.
Key Points
- The peace deal has seen oil fall to its lower levels since February.
- There was little change in the June WASDE.
- Price upside remains reliant on production issues in the northern hemisphere.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: MLA, Bloomberg, CME, ASX, Mecardo
