A possible 14-day ceasefire announced between the U.S. and Iran and the reopening of the Strait of Hormuz created volatile moves in many markets Tuesday night and Wednesday.
Most markets saw the unwinding of positions.
Nymex WTI crude oil futures plunged $20 during the session, ending 16% lower at $94.41 per barrel while corn, wheat and soybean oil followed. Outside markets like the Dow Jones Industrial Average rallied 1,325 points, with the U.S. Dollar Index dropped 0.8%.
Ag Markets Unwind With Crude Oil
The plunge in crude oil spilled over to pull down corn, wheat and bean oil futures.
Randy Martinson, Martinson Ag, says those markets were extracting risk or war premium.
He says depending on the outcome those markets could fall even further. “The crude oil market is still about $20 to $30 above where it was when the war started. So we still have quite a bit of premium we can give back out of this market or pull back out of this market.”
That could further drag down corn due to the biofuels tie and wheat on ideas of lost exports.
Markets Pause Awaiting Proof of Ceasefire
However, for now Martinson thinks the markets have removed enough premium and may take a pause.
“I think they’re going to wait to see. I think they’ve taken a lot of what they will out of it. Now we’ll see if the ceasefire holds over the next two weeks and if we can get a peace deal done. We need to start seeing, you know, ships moving through the Strait of Hormuz. That’s going to be another, you know, criteria.”
Soybean oil also plummeted with crude oil and heating oil or diesel fuel.
Soybeans Trade Higher on China Hopes
However, soybeans recovered on hopes of a better outcome to the China summit in mid-May.
According to Martinson, “You know, one, that it’s going to take the pressure off Trump to be able to have his meeting with Xi at the beginning or in May, like they’ve got scheduled. And it’s likely that means that China is looking to make some announcement of purchasing more U.S. soybeans.
Fertilizer Prices Ease
Fertilizer prices also cooled slightly on the news according to Josh Linville, vice president of fertilizer with StoneX.
“The limited amount of trade that we have seen, NOLA, Urea, physical barges have been down anywhere from 7% to 10% from the highs.”
Still, Linville says the possible cease fire casts uncertainty on a market that was trying to normalize.
Fertilizer Shipments Slow to Resume Even if the Strait is Reopened
So, will fertilizer prices cool further if the Strait of Hormuz is reopened?
Linville says, “Even if you see the rest of the world starting to fall I think spring numbers are going to be very very frustrating for farmers I think the prices are going to stick a little bit more than what they had hoped to see.”
That’s because fertilizer may be one of the lower priority products for shipping and due to the sheer logistics of getting product in place.
“You’re talking in a lot of cases these products that are going to ship now if assuming the Strait is open they’re not going to arrive until first half mid-may and for a lot of places that’s too late for spring,” he adds.
