Grain and oilseed futures gapped higher at the open Sunday night as crude futures jumped nearly 12% in reaction to the joint U.S.-Israel attack on Iran and fears around crude flows out of the Middle East before trimming gains. Hard red winter wheat and soybean oil futures remained higher while corn, soybean and soft red winter wheat futures slipped into negative territory as crude futures trimmed initial gains.
The global market tone reflected significant concern but not panic over the situation in the Middle East as ship traffic through the Strait of Hormuz, a crucial transportation chokepoint, came to a virtual halt.
Global stock-market indexes down and sparking gains for safe-haven assets like gold, U.S. Treasurys and the U.S. dollar. May West Texas Intermediate crude futures, the U.S. benchmark, was up 4.3% at $69.76 a barrel after trading as high as $74.70 in early trade.
At 9 p.m. CST Sunday:
- May corn was down 3/4 cent at $4.47 3/4
- May soybeans fell 1 3/4 cents to $11.69.
- May soybean oil rose 113 points to 63.01 cents.
- May soybean meal fell $3.90 to $316.60
- May SRW wheat futures were dwon 3/4 cent at $5.90 3/4
- May HRW wheat futures rose 3 cents to $5.88 1/4
- April gold was up 2.3% at $5,367.80 an ounce after trading as high as $5,409.70
- March Dow futures were down 378 points, or 0.8%
- S&P 500 futures fell 0.7%
- Nasdaq-100 futures shed 0.8%
Spikes in oil prices have tended to be a positive for grain and oilseed futures, particularly soybean oil and wheat, as well as agricultural commodities more broadly. But big jumps can also spark selloffs in the stock market and undercut consumer confidence, potentially raising fears around consumer demand. Investors are paying close attention to the fate of ship traffic through the Strait of Hormuz, the world’s busiest waterway for global oil shipments and a key chokepoint for fertilizer shipments.
In recent developments:
- The U.S. military’s Central Command said three U.S. service members were killed in and five were injured as part of Operation Epic Fury.
- Eight major oil-producing nations, members of the group known as OPEC+, agreed Sunday to resume production increases in April, raising production by a collective 206,000 barrels a day in a bid to soothe market worries.
- President Donald Trump told the New York Times that he was open to lifting sanctions on Iran if the new leadership showed itself to be a pragmatic partner.
- Iranian Foreign Minister Abbas Araghchi warned counterparts in Saudi Arabia, the UAE, Qatar, Kuwait, Bahrain and Iraq that they could become “legitimate targets” if they allow the U.S. and Israel to use their territory to attack Iran, NBC News reported.
- The Wall Street Journal said almost 400 missiles and about 1,000 drones fired from Iran were intercepted by security forces in Jordan, the United Arab Emirates, Qatar, Kuwait and Bahrain. That doesn’t include missiles and drones that got through air defenses, hitting ports, airports, hotels, military bases and other infrastructure.
Market implications
The Strait of Hormuz, located between Oman and Iran, is a narrow waterway that links the Persian Gulf with the Gulf of Oman and the Arabian Sea. At its narrowest point, it’s only 21 miles wide, and the width of the shipping lane in either direction is merely two miles. Around 20 million barrels of crude a day move through the strait, equivalent to around 20% of global consumption, according to the U.S. Energy Information Administration. Around 80% of those flows go to Asia. About a fifth of global liquefied natural gas (LNG) trade also flows through the waterway.
Iran itself pumps up to around 3.5 million barrels a day of crude, around 3% of world supply, much of it destined for China.
Any prolonged closure of the strait isn’t just a threat to energy supplies, but also represents 25% to 35% of traded ammonia and urea, noted analysts at Scotiabank.
The link between oil volatility and ag commodities
David Whitcomb, head of research at Geneva-based Peak Trading Research, highlighted the relationship between crude-oil volatility and ag futures in a Saturday note.
“If Crude gaps higher..., upside volatility across the commodity complex is likely,” he wrote.
Peak Trading found that in the 30 sessions over the past five years where crude oil rallied 4% or more, the broader commodity complex followed higher, with wheat and soybean oil showing the strongest co-movement in the agriculture complex (see chart below).
Fertilizer risks
Fertilizer prices may also rise, with much of the industry’s supply chain originating in the Middle East. A surge in natural-gas prices would also have implications for fertilizer production costs, particularly in Europe.
Argus reported that Egyptian fertilizer producer Mopco sold granular urea at $505 per ton FOB, while fellow supplier Alexfert sold at $495 per ton, up from trade at $480 to $485 a ton on Friday. The report said Egyptian producers had reported no cutoff of natural gas supplies, but noted gas flows from Israel to Egypt were cut in the wake of the conflict between Israel and Iran in mid-June last year, knocking all Egyptian urea production offline and sending urea prices into Europe soaring.
In a note Friday, StoneX fertilizer analyst Josh Linville had warned that the timing of a conflict for fertilizer “literally could not be worse.” He noted that the phosphate market was already suffering from a lack of Chinese exports that aren’t expected back until August at the earliest, while the nitrogen market is ramping up for spring shipments and is already suffering from supply issues.
Strait scenarios
The UK Maritime Trade Operations Center has reported that the three ships were attacked near the mouth of the Persian Gulf. Energy and commodities data platform Kpler on Sunday said the jamming of satellite navigation signals had also served to severely curtail traffic through the strait. Shipping and maritime news service Lloyds List reported that there were no traceable passings by major crude tankers through the strait since Saturday night. Lloyds List said the deteriorating security environment, along with rising insurance premiums and cancellations of war risk policies, was acting as a de-facto deterrent for shipping in the region.
An attempt by Iran to fully close the strait for an extended period has been viewed as a tall order, particularly given a huge U.S. naval presence in the area. Such a move would also be detrimental to Iran itself, which relies on crude shipments to Asia for revenue. But analysts note that desperation could prompt Iran to take more extreme action.
Bridget Payne, head of energy forecasting at Oxford Economics, said in a note to clients ahead of the attacks earlier this past week that the potential for disruption in the strait is on a sliding scale, and more likely to take the form of targeted attacks and interference than a complete closure. That would make for reduced energy flows rather than a complete halt, while alternative supply and pipelines, as well as storage drawdowns, would provide a buffer.
“A severe disruption is unlikely to be sustained as that would require Iran to maintain an unprecedented naval blockade and defend against the rapid military, economic, and diplomatic response it would provoke from major powers,” she wrote. “We would therefore expect the market impact to be short-lived and for trade and prices to quickly recover.”
Oxford Economics sees Brent crude trading around $84 a barrel while Strait transit is disrupted, representing a modest supply loss that can be largely offset. At the same time, the messy geopolitical situation that’s almost certain to follow will likely keep a floor under prices through 2026, Payne said, with Brent likely averaging $79 a barrel over the second quarter, $13 above the firm’s baseline forecast.
Tail risk
The tail risk is a severe disruption that sees Iran effectively halt transit through the strait for up to a week, the analyst said. Although unlikely, this scenario becomes plausible if the regime sees its survival at stake. It would likely involve damage to Iranian oil infrastructure.
“We estimate the net supply impact of effective Strait closure is around 11 million barrels per day accounting for alternative pipelines, demand destruction, and the US supplying at full capacity,” Payne wrote.
The result would be an immediate surge in global oil and gas prices, with crude jumping to $140 a barrel and liquefied natural gas prices quadrupling above $40 per million British thermal units as buyers scramble for replacement cargoes, she said, making for a shock similar to the immediate aftermath of Russia’s invasion of Ukraine.
The situation remains fluid. A rapid conclusion to the conflict could spark a round of market relief, though geopolitical uncertainty would likely linger.