Written Commentary
SOYBEANS
Better clarity regarding China’s planned purchases of US Ag goods has rallied beans sharply higher overnight after last week’s 2-day pullback. The White House fact sheet over the weekend showed China committed to purchasing $17 billion worth of US Ag products over the next 3 years, which is in addition to the bean purchase commitment back in October of last year. The “in addition” part caught the trade’s attention, along with reports that both China and the US are negotiating a 10% tariff reduction, which would make US beans much more competitive.
SOYBEAN MEAL
Soybean meal is starting the week higher on sharp gains in beans. Last week, July meal futures retested 6-month highs as processor maintenance downtime and the strong export pace drove prices higher.
CORN
The sharp pullback in the second half of last week encountered heavy buying overnight after the White House confirmed that China agreed to buy $17 billion of additional Ag goods, including corn. Negotiations are ongoing, but it appears that both the US and China will lower or eliminate the 10% tariff. US corn export demand has outperformed all season, and any additional buying by China could require the USDA to further tighten the balance sheet.
WHEAT
There was a sharp turn higher overnight in wheat after the White House fact sheet showed US wheat could be part of the $17 billion China Ag purchase package. In addition, Russian spring wheat planting has been very slow due to cold/wet conditions, and the second half of May will be critical to get the crop in.
CATTLE
The cattle complex closed out last week firmly on Friday and may see additional gains this morning as China confirms it has renewed export licenses for 5 years for 425 US beef plants. China typically buys the parts of the cow that are unpalatable here in the US. Potential new demand on top of last week’s all-time high cash prices is supportive, and the longer-term bull trend remains in place.
HOGS
The market may have a mixed start today, with optimism stemming from the White House fact sheet that China will buy $17 billion in additional Ag goods from the US, which could include pork. However, the recent pseudorabies detection in the US has caused Mexico to halt imports of US breeding pigs and pork offal. This could increase our domestic hog numbers and could offset today’s China optimism.
MILK CLASS III
June Class III milk finished last week with a sizable loss after reaching a 3 1/2-month low on Friday.
CRUDE OIL
July Crude traded to a new contract high early Monday and the nearby contract to a two week high on reports of a drone attack of a UAE nuclear power plant. The drone hit an electrical generator outside the inner perimeter of the plant; UAE nuclear officials said the plant remained safe and no radioactive material released from the strike. Saudi Arabia said it intercepted three drones that entered from Iraqi airspace.
NATURAL GAS
July Natural Gas was sharply higher early Monday, in line with other energy markets in the wake of the drone strikes in UAE and Saudi Arabia. The July contract reached its highest level since April 7, and the nearby its highest since April 27. US gas prices have been insulated from the global market because the US has been exporting about as much LNG as it can. Other supportive factors are an apparent slowdown in US production and warmer temperatures in the US that could provide an early start to the cooling season.
DOLLAR INDEX
The USD index is 0.15% lower to 99.12, dropping after it was reported that Pakistan had received a revised peace proposal from Iran to which it shared with the US. The bias for the dollar remains higher as the safe-haven rally, inflationary backdrop, and growing expectations that the Fed may need to hike rates are all dollar-positive.
COCOA
July Cocoa was unchanged to higher early Thursday following a steep selloff on Wednesday. The market has been consolidating this week following a move to 3 ½ moth highs last week. It has found support recently from forecasts for a “Super El Nino” event expected to arrive in June that could affect production late in the 2026/27 main crop, as well as from worries about high fertilizer costs stemming from the closure of the Strait of Hormuz. Reuters reported yesterday that dealers said there had been a pickup in origin selling following the recent run-up in prices. Ivory Coast farmers have complained about dry conditions recently.
COFFEE
May Coffee has been in a choppy pattern of late, having bounced off a nine-month low on Monday but apparently rejecting a brief bounce to a one-week high on Wednesday. The Brazilian arabica harvest is approaching, and it is expected to be quite large, so it is difficult for the market to build upside momentum. Sellers have been reluctant given tight old crop supplies and the steady increase in the Brazilian currency, the real. But the real’s sharp selloff on Wednesday could increase the incentive for producers and exporters to price their new crop.
COTTON
July Cotton sold off sharply early Thursday after reaching new contract highs the previous session. Dry conditions across most of US cotton growing areas have been the main reason for the rally. As of a week ago Tuesday, the US drought monitor indicated that an area representing 98% of US cotton production was experiencing drought.
SUGAR
July Sugar reached its highest level since May 5 early Thursday before turning lower on the day. The market managed to close a gap form the open on May 6 on Wednesday, and that may have satisfied the bulls for now. The failure to take out the May 5 high may have also been a disappointment, as well as the slightly lower crude oil prices overnight.
PRECIOUS METALS
June COMEX contracts are up 0.22% to $4,572, reversing overnight losses amid a marginally weaker dollar and dip in Treasury yields. For gold, expectations that the Fed will raise rates and materially higher yields and dollar are providing strong headwinds to gains. Spiraling inflation concerns are prompting the aggressive selling rather than the classic flight-to-quality buying one would expect given the geopolitical backdrop – gold is now positively correlated with equity performance.
Silver futures are up 0.73% to $78.11. Silver has been silver outperforming gold recently. Silver reached its highest level since March 10th, while gold has been stuck in sideways consolidation.
Copper prices moved lower overnight as demand worries pressured prices over weaker-than-expected data from China.
EQUITIES
Equity index futures moved lower overnight as elevated Treasury yields and Fed rate hike expectations continue to weigh on sentiment. Crude oil pushed near $109/barrel overnight and with the Iran conflict having gone on for 80 days now, the next round of monthly inflation reports are expected to run even hotter given energy’s trajectory. The 30-year Treasury yield broke above its pre-2008 highs raising possibility of a meaningful rotation from stocks to bonds for the first time this cycle.
INTEREST RATES
Yields edged lower across the curve as bond markets remain under significant pressure with the two-year remaining above 4% and the 10-year above 4.57%. Rising yields are a common theme across the global marketplace with UK long-dated gilt yields at their highest since 1998, while JGBs hit their highest level since 1996.
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