Missiles in the Strait, Markets on Edge

Iran hitting a crude oil tanker with missiles in the Strait of Hormuz sent the energy markets soaring again today which pulled corn, beans, and wheat sharply higher as a quick end to the Iran bombing does not seem imminent. Yesterday’s vow by President Trump to provide military escorts to crude tankers going through the Straits calmed the markets, but today’s developments ended that short-lived exhale. The market casualty in today’s trade was definitely the world equity markets as the Dow lost over 2%, with the other indexes down similar percentages. All markets like stability and certainty, but this week has pushed the world markets into a state of panic and disarray not seen since the start of Covid in March of 2020.

News and Notes:

- While this week’s rain across the southern parts of IL and IN was welcome, the driest areas of the state in N IL and N IN were missed almost entirely. Despite last year’s record yields, there are major production areas in the Big I states that have been in drought conditions for nearly 3-years. SA weather is turning wetter, but it is not a concern yet. Until the Iran conflict is resolved and the Straits are safely re-opened, world weather will not get much attention.

- The daily December corn chart is on Page 2 as prices have shot higher this week to continue the impressive rally to move to new 9-month highs. Funds have moved to a modest long position on great looking charts, while the fundamental traders and end users are buying corn because increased fertilizer prices will push a larger shift of corn acres to bean acres this spring in the US and for the other northern hemisphere corn areas of the Black Sea, Europe, and China. While trade will continue to be extremely volatile and driven by crude oil prices, if the US plants 95 MA or less of corn this spring, $5 December corn futures will be in play with any summer growing issues or Brazilian safrinha corn yield problems in the next 3-months.

- Bean oil and ethanol prices have soared (new contract highs in bean oil after a 30% spike higher) to follow the crude oil rally. The biofuel associated crops will be extremely sensitive in the weeks ahead, not just because of crude, but because bullish leaning EPA recommendations that have been submitted to the White House are expected to be released in the weeks ahead. Corn and beans have a growing list of market moving inputs.

- Weekly export sales were decent for wheat and beans, but corn sales posted another strong week and continue to impress. The USDA will need to increase corn exports in an upcoming monthly report by 40-60 MBU. Corn has more than a few bullish legs of support without high energy prices.

- Putting together the pieces of all the current market moving news and numbers is like putting together a puzzle that fights back every time you get a piece in place. Our markets needed a shock to cut into the big ending stocks, either through yield loss or increased demand, but the rallies have come from an unexpected source of soaring crude oil prices and the highest level of US lead conflict in the Middle East in nearly 30-years. If any of the energy analysts are correct on their $100 crude oil projections (today’s close was $81.01), corn and bean will not need much yield loss or new domestic demand to continue higher and build a new base of price support.

- Wheat rallied to new 8-month highs this week because of the Middle East uncertainty. While wheat does not have a bio-fuel story, it is the base grain and food source for most of the Middle East. North African and India’s wheat crops are key to the region and any uncertainty or long-term conflict in Iran will keep wheat on edge. Also, strong wheat prices support corn prices, for another benefit. Very rarely will one event send corn, beans, and wheat sharply higher, but Middle East war is doing it.

While war is the last event anybody wants to rally our markets, we still have to use the rallies since they benefit your bottom line. Today’s Dec corn futures rallied came up a 1/2 cent short of the Sales Target, so I expect to make additional corn sales at some point soon. Please use these rallies to catch up on old and new crop sales, since we know any announcement of a cease-fire will send prices down as quickly as they rallied. History tells us these conflicts never have long-lasting market effects, so use these to be in a good position for spring.