Written Commentary
SOYBEANS
Reports that a 60-day cease-fire with Iran has been agreed upon, with the signing ceremony set for June 19th, have beans and bean oil under pressure this morning. As energy prices extend last week’s decline, beans made new 4 1/2-month lows. With the reopening of the Strait of Hormuz, crop input prices will be falling, taking away one of the supportive fundamental factors.
SOYBEAN MEAL
Meal prices are seeing minor gains to start the week after choppy trade most of last week. July remains near its lowest price level of the year, and recent weak technical action has pushed the market down into very oversold territory. The decline has reached an area where consumptive interest is increasing, which slowed the break last week. Whether that will give the market enough of a boost to recover from the more than $40-per-tonne drop since mid-May remains to be seen, but it at least will lessen the risk of aggressive long liquidation from here.
CORN
A cease-fire deal appears to finally be in place, with a signing scheduled later this week in Switzerland, and that has pushed energy prices lower overnight, pulling corn down as well. An easing of fuel and fertilizer prices is ongoing, and combined with favorable US crop weather, the path of least resistance looks lower. Both old and new crop have moved to new contract lows again this morning.
WHEAT
Chicago wheat has fallen to a new 4-month low this morning as it dropped below the 200-day moving average for the 1st time since mid-February. Both Iran and the US say a peace deal has been agreed upon, which will be signed later this week and has reignited speculative selling overnight after prices held mostly sideways last week. The end of hostilities is expected to lower food inflation and ease input costs for farmers.
CATTLE
There was a lower finish to last week for live cattle and feeders. JBS announced the closure of two more beef plants, one in Pennsylvania and one in Tennessee, marking the 6th and 7th plant closures this spring. This gives cattle feeders fewer sales outlets, which is a negative factor for prices overall. COT data showed no major change in the net long position in feeder cattle, but Managed Money traders did reduce their net long in live cattle by 5.2% to 109,000 contracts.
HOGS
July hogs opened sharply weaker on Friday, but turned higher by the close in impressive fashion. However, upside follow-through has been absent lately, and early this week the market needs to build on Friday’s friendly close before considering Friday’s low important. Cash hogs last week were higher, and cutout jumped sharply on Friday. Open interest was up just under 1600 contracts but remains near a 6-month low. COT data showed Managed Money traders doubled their net short, which now stands at just under 14,000 contracts.
MILK CLASS III
July Class III milk finished last week with a moderate loss after reaching a new contract low on Wednesday.
CRUDE OIL
August Crude Oil gapped lower early Monday on the news that the US and Iran had agreed to a memorandum of understanding that would include a 60-day cease fire, a reopening of the Strait of Hormuz within 30 days, and an end to the US blockade of Iranian ships. This signing is reportedly set for Friday, likely in Switzerland.
NATURAL GAS
August Natural Gas was lower early Monday on the news of agreement between the US and Iran. The potential restoration of LNG flows through the Strait of Hormuz means that US exports could start to see competition from Qatar once again, but it could take also quite a while for that country to see its flows return to where they were prior to the war given the damage their plants suffered from Iranian attacks.
DOLLAR INDEX
The USD index fell 0.2% to 99.55, alongside the drop in oil prices as a broad risk-on rally takes place in the markets. The dollar is likely to lose support from an unwinding of Fed rate hike expectations. Current pricing has pushed back expectations of a hike to March 2027 from December on Friday, a dynamic that is likely to continue as long as oil prices continue to drop.
COCOA
September Cocoa gapped higher early Monday and reached its highest level since June 3. News that the US and Iran had reached an agreement that would reopen the Strait of Hormuz eases concerns about the global economy and therefore cocoa demand. Crop conditions are on the whole are favorable in the key growing region of West Africa.
COFFEE
September Coffee extended last week’s recovery rally early Mondy and reached its highest level since June 1. The market has seen a moderate recovery rally over the past five sessions after falling to its lowest level in 18 month last week. The Brazilian arabica harvest is underway, and a very strong crop is expected, but recent rainfall appears to be slowing things down.
COTTON
December Cotton was near unchanged early Monday as disappointing rain amounts in West Texas over the weekend countered the bearish effects of the sharply lower oil prices in the wake of the agreement between the US and Iran that would reopen the Strait of Hormuz, as lower oil prices reduce the cost of producing polyester.
SUGAR
October Sugar fell to its lowest level since April 21 early Monday but then recovered to higher on the day. The market likely saw its early weakness from the drop in oil prices, as that could reduce the incentive to crush cane for ethanol.
PRECIOUS METALS
August gold contracts are up 3.4% to $4,383, as oil fell on the US-Iran news. While still a framework, the deal is the most significant breakthrough and would see the Strait reopen. Silver futures are up 4.6% to $71.12. Copper prices rose on the US-Iran news. Benchmark three-month copper on the London Metal Exchange rose 0.4% to $13,748; COMEX copper prices are up 1% to $6.50.
EQUITIES
Equity index futures are sharply higher to start the week, aided by the news that the US and Iran have reached a memorandum of understanding to end the war and reopen the Strait. The agreement is set to be signed Friday.
INTEREST RATES
Yields are lower across the curve in response to the US-Iran news ahead of the Fed’s first Warsh-led meeting this week. Negotiations on aspects of the deal are ongoing, but no doubt policymakers will be relieved that the upside risks to inflation appear to be receding. The two-year remains above 4%, a key signal that the bond market is not totally relieved from the recent news.
Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.
ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.
A subsidiary of Archer Daniels Midland Company.
© 2021 ADM Investor Services International Limited.
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM. The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.
