Check our advice monitor at ProFarmer.com for updates to our marketing plan.
Talk about ending the week with a bang. The declaration by Iran’s foreign minister that the Strait of Hormuz is open to all traffic saw crude-oil futures plunge, the dollar retreat, and stocks soar.
Grain futures got caught in the initial downdraft as oil plunged by 10%, but July corn was down just ¼ cent by the closing bell, while July soybeans gained 2 ½ cents. Pre-weekend profit taking left wheat futures down but off session lows. As noted in this weekend’s Pro Farmer newsletter, grain futures appear to increasingly trade on weather and other fundamentals rather than being whipsawed by the oil markets.
Still, what happens to crude, stocks and other outside markets can’t be ignored. Stocks have scored a historic comeback from their late March lows, with the S&P 500 and Nasdaq scoring record highs. Closely followed economist Mohamed el-Erian, in a Substack post Friday, highlighted the gap between a soaring stock market and the economic damage resulting from the war.
He wrote:
- The issue now is how and when the stark contrast between a booming US stock market and challenged real economies in most of the rest of the world will narrow. While stocks have soared, the global economy continues to face significant headwinds. Every day that energy production and shipments remain under threat of massive disruption, fears of physical shortages mount, as evidenced by daily reports of more countries (particularly in Asia) and some industries (such as airlines) already taking precautionary steps to curtail energy consumption.
And don’t forget the farm economy, where the surge in fertilizer prices and the hit to supply lifted input costs just ahead of planting season and is set to reverberate well into next year, as we also discuss in this week’s newsletter.
Threading the needle: Investors will see what the weekend brings in terms of further negotiations toward a permanent peace deal and traffic through the Strait of Hormuz.
Uranium enrichment and Iran’s stockpile of highly enriched fissile material is certain to be a central point of contention when negotiations resume, said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note. She sees no scope for Iran to fully relinquish what it sees as its right to enrich uranium, which means any deal will likely revolve around some type of “extended pause.”
She argued that the Israeli government and congressional hawks are likely to oppose any deal that allows Iran to retain enrichment capabilities and stockpile of fissile material—setting up a potential battle on Capitol Hill if Trump seeks to vacate the Iran sanctions.
Also, Washington’s Gulf allies will also undoubtedly object to any agreement that enshrines Iranian control over the Strait of Hormuz, she said.
Asia’s biofuel scramble: Fuel suppliers in Asia are rushing to secure biofuels after they became cheaper than their fossil-fuel counterparts for the first time, the Financial Times reported, a consequence of the oil squeeze driven by the Iran war prompts a scramble for replacements. Benchmark biodiesel prices in Europe moved to a discount to traditional diesel in late March, according to Argus Media, while Asian palm oil futures also slipped below diesel in early April.
Asian oil suppliers were making “more and more” enquiries to secure diesel substitute hydrotreated vegetable oil, Matti Lievonen, chief executive of Hong Kong-based renewable fuel producer EcoCeres told the FT, adding that much was destined for Australia, where the supply crunch is particularly severe. Demand was probably being driven by oil majors racing to secure diesel substitutes, Lievonen said, but he added that the market fundamentals were also shifting, as renewable fuels became more competitive and suppliers began to “think differently” about fuels not tied to the Middle East.
Ethanol-friendly: The U.S. is proposing a change to International Maritime Organization biofuel rules in an effort to address unintended deforestation from fuel crops, while at the same time giving a boost to U.S. ethanol production, according to a report in Ship & Bunker.
Washington is challenging the IMO’s approach to assessing land-use change risks of crop-based marine fuels, a category dominated by ethanol, arguing that the current methodology is flawed in a way that could allow fuels sourced from high-deforestation regions to be classified as sustainable under the organizaton’s rules, the report said.
The other Strait: China blasted Japan for sending a warship through the Taiwan Strait on Friday, the South China Morning Post reported, just days after Tokyo announced its troops would join a major US-Philippine military drill for the first time. Foreign Ministry spokesman Guo Jiakun said the entry of a Japanese Self-Defence Force vessel into the strait was a “deliberate provocation,” the report said. He added that Beijing had lodged a “strong protest” with Tokyo.
The report noted that Guo also renewed criticism of Japanese Prime Minister Sanae Takaichi’s remarks in November that a conflict with Taiwan could lead to a Japanese military intervention, saying the comments were “severely impacting Sino-Japanese relations.” Tensions between Beijing and Tokyo have remained high since those remarks by Takaichi.
‘Break glass’ emergency warning: Former Treasury Secretary Henry Paulson on Thursday warned that the U.S. government needs an emergency plan in place in the event the bond market balks at continued heavy borrowing by the federal government.
“We need an emergency break-the-glass plan which is targeted and short term on the shelf, so it’s ready to go when we hit the wall,” Paulson, who ran the Treasury Department under former President George W. Bush, said in an interview with Bloomberg Television’s Wall Street Week on Thursday. MarketWatch noted that Paulson’s warning comes as investors grow increasingly concerned about the waning appeal of U.S. Treasury debt. Persistent deficits, heavy debt issuance and inflation worries have weighed on longer-term government bonds recently.