Why it matters: The escalating conflict in Iran and surrounding Mideast countries is causing large price swings in energy, currency and equity markets, with that activity spilling into the fertilizer and agricultural markets.

Crude oil futures in London and New York soared almost 30 per cent in early trading to nearly $120 a barrel, one ofthe biggest one-day jumps on record, threatening to raise costs of products from gasoline to jet fuel. The prices then pulled back, with U.S. crude up 7.72 per cent at $97.92 a barrel and Brent at $100.56 per barrel, up 8.49 per cent on the day.

Investor jitters over soaring energy prices meant a wave of global stock and bond market selling which hung over the Wall Street open. In early trading, the Dow Jones Industrial Average 1.4 per cent, the S&P 500 dropped 1.26 per cent, and the Nasdaq Composite slid 1.16 per cent.

Iran named Mojtaba Khamenei to succeed his father Ali Khamenei as Supreme Leader, signalling that hardliners remained firmly in charge a week into the war with the U.S. and Israel.

That was unlikely to be welcomed by U.S. President Donald Trump, who had declared the son “unacceptable.”

With hostilities continuing in the Middle East and tankers unable to cross the Strait of Hormuz amid the threat of Iranian drone attacks, investors were bracing for a long stretch of higher energy costs.

Investors awaited Washington’s response, said Helima Croft, head of global commodity strategy at RBC Capital Markets. “With no clear definition of what winning looks like, it is hard to forecast whether this will be a multi-week or multi-month conflict.”

GLOBAL MARKETS SINK

European shares tumbled to their lowest in more than two months on Monday, with the pan-European STOXX 600 down 1.76 per cent in a third session of losses. The benchmark index shed 5.5 per cent last week, its worst weekly performance in nearly a year.

The oil price spike was sobering for major oil importers in Asian markets, with Japan’s Nikkei .N225 closing down 5.2 per cent after a 5.5 per cent drop.

China, another big oil importer albeit with a huge stockpile of crude, saw its blue-chip index fall roughly one per cent. China on Monday said inflation had already picked up in February before the current oil surge, with consumer prices rising 1.3 per cent on the year, not necessarily a negative development, given the country has long struggled with disinflation.

Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote in a note on Monday that the U.S. equity market may still seem placid but there are “extreme” rotations and stock dispersions beneath the surface.

“Over the past 80 years, war-induced oil shocks have not been kind to equities, as nearly every episode has catalyzed a recession and market sell-off,” Shalett wrote.

CENTRAL BANKS FACE INFLATION CONUNDRUM

In bond markets, the risk of rising inflation outweighed safe-haven considerations to shove yields higher globally. Yields on 10-year Treasury notes rose 2.6 basis points to 4.158 per cent, up from a trough of 3.926 per cent just a week ago.

Interest rate futures slipped as investors feared the risk of higher inflation would make it harder for the Federal Reserve to ease policy, though disappointing U.S. jobs numbers seemed to argue for stimulus.

Data on U.S. consumer prices due on Wednesday is forecast to show the annual rate holding at 2.4 per cent in February.

The Fed’s preferred measure of core inflation due on Friday is forecast to hold at 3.0 per cent, well above the central bank’s two per cent target, and analysts see a risk of an even higher number.

The danger of energy-driven inflation has led markets to wager the next move in rates from the European Central Bank could be up, possibly as early as June.

For the Bank of England, markets have shifted to pricing just a 40 per cent chance of one more easing, compared with two cuts or more before the Middle East conflict started.

Nervous investors sought the liquidity of dollars while shunning currencies from countries that are net energy importers, including Japan and much of Europe.

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Hog futures fell the most, with the benchmark December contract settling down two cents, or 2.9 per cent, at 66 cents/lb. after setting a contract low of 65.4 cents (all figures US$). The February, April and May hog contracts hit contract lows as well.

“I think you just had a bunch of selling tied to fears of recession coming… and possibly that’s going to affect meat consumption. So (traders) are worried about the demand side of the equation,” said Dan Norcini, an independent trader.

U.S. equity markets ended sharply lower for the day and week as investors worried about more interest rate hikes and the Israel-Hamas conflict spreading.

Hog traders shrugged off support from an uptick in wholesale pork prices, and the fact that December hog futures are trading at a hefty discount to cash prices. The CME’s Lean Hog Index, a two-day weighted average of cash prices, was last quoted at 80.45 cents/lb.

The U.S. Department of Agriculture (USDA) quoted the wholesale pork carcass cutout late Friday at $87.97 per hundredweight (cwt), up $0.84 from Thursday’s 4-1/2 month low of $87.13.

Cattle futures followed the weak trend seen in hog, grain and equity markets. CME December live cattle futures settled down 0.675 cent at 184.625 cents/lb.

November feeder cattle futures fell 2.275 cents to finish at 242.225 cents/lb. and most-active January feeders ended down 2.325 cents at 243.05 cents/lb.

After the close of the market, USDA reported the number of cattle in U.S. feedlots on Oct. 1 at 100.6 per cent of a year ago, while analysts surveyed by Reuters on average had expected a slight reduction of 99.7 per cent of year-ago.

USDA said cattle placements into feedlots during September were 106 per cent of a year ago, while analysts on average expected placements at only 100.8 per cent. Cattle marketings during September were 89.4 per cent of a year ago, below the average estimate of 90.3 per cent.

Traders said USDA’s figures were bearish and could pressure CME cattle futures on Monday.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago.

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Livestock futures, grains and Wall Street equity markets all declined on Thursday as the U.S. dollar set a six-month high one day after the U.S. Federal Reserve signaled policy would remain restrictive for longer. The Fed’s stance clouded prospects for U.S. exports and economic growth.

Meanwhile, the U.S. Department of Agriculture (USDA) late Wednesday quoted the wholesale pork carcass cutout at $99.22 per hundredweight (cwt), down $1.91 from the previous day. The cutout fell another 47 cents on Thursday, to $98.75/cwt, the lowest in a week.

“The pork cutout was down, and I still think there are expectations for the seasonal trend lower to continue in cash (hog) prices. And probably a sense that the (hog futures) rally earlier in the week was overdone,” said Doug Houghton, analyst for Brock Associates.

CME October lean hog futures settled down 2.825 cents at 82.95 cents/lb., and most-active December hogs fell the daily limit of 3.75 cents to finish at 74.475 cents, retreating from a 4-1/2-month high set on Wednesday.

Daily limits on lean hog futures will widen to 5.5 cents for Friday’s trading session, the CME said.

Hog traders shrugged off decent weekly export data. U.S. pork export sales in the week to Sept. 14 totaled 30,200 metric tonnes, USDA said, up 31 per cent from the previous week and up one per cent from the prior four-week average.

Weekly beef sales of 13,700 tonnes were up 15 per cent from the prior four-week average.

In cattle markets, CME live cattle futures followed hogs and equities lower as traders await USDA’s monthly Cattle on Feed report, due Friday.

Analysts surveyed by Reuters on average expect USDA to report the number of cattle in U.S. feedlots as of Sept. 1 at 11.023 million head, down 2.3 per cent from a year ago, and placements into feedlots during August were seen down 6.4 per cent from a year ago.

CME October live cattle futures settled down 1.8 cents on Thursday at 184.975 cents/lb., and most-active December ended down 2.025 cents at 189.5 cents.

October feeder cattle futures settled down 2.8 cents at 257.775 cents/lb.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago.

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Wheat followed the firm trend, drawing additional support from weather concerns in China and tensions over a shipping corridor from war-torn Ukraine.

Chicago Board of Trade July corn settled up 16-1/2 cents at $6.09 per bushel, pushing through chart resistance at its 50-day moving average near $6.05 (all figures US$). CBOT July soybeans ended up 23 cents at $13.52-1/2 a bushel and July wheat finished up 8-1/4 cents at $6.19 a bushel.

For the week, benchmark corn rose 0.8 per cent, soybeans rose 1.1 per cent and wheat rose 0.5 per cent.

Mediocre weekly export sales of U.S. corn, soybeans and wheat underscored market worries about poor demand. But futures for all three grains rallied as traders focused instead on U.S. crop weather, with dryness building in portions of the Midwest.

“The weather is becoming an increasing concern, especially in the corn and to a lesser extent the beans,” said Jack Scoville, analyst with the Price Futures Group in Chicago.

An improving macroeconomic outlook lent support. Wall Street equity markets rose on bullish U.S. jobs data and congressional approval of legislation to avert a catastrophic debt default.

“Crude oil is up and equities are up, so a bit more of a risk-on vibe, in general. But the dollar index is firm, so that offsets some of that friendly tone,” said Terry Linn, analyst with Linn + Associates in Chicago.

Bullish April crushing data lent support to soybean futures. The U.S. Department of Agriculture on Thursday said U.S. processors crushed 187 million bushels of soybeans in April, topping a range of analyst estimates.

Traders continued to monitor tensions over a shipping corridor from war-torn Ukraine. Kyiv would be ready to continue exporting grain across the Black Sea as part of a “plan B” without Russian backing if Moscow pulls the plug on the current grain export deal and it collapses, Ukraine’s farm minister said.

Kyiv said on Thursday the U.N.-brokered Black Sea grain export deal had been halted again as Russia had blocked the registration of ships to all Ukrainian ports.

— Reporting for Reuters by Julie Ingwersen in Chicago; additional reporting by Gus Trompiz in Paris and Enrico Dela Cruz in Manila.

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“The wetter outlook removed the one factor providing stability for the grain and oilseed markets, allowing prices to tumble today,” StoneX chief commodities economist Arlan Suderman wrote in a client note.

Equity markets and crude oil futures sagged, adding to bearish sentiments in grains as concerns grow about whether the U.S. Congress will pass the U.S. debt ceiling pact.

Chicago Board of Trade July wheat settled down 25 cents at $5.91 per bushel, after falling to $5.88-3/4, the lowest on a continuous chart of the most-active wheat contract since December 2020 (all figures US$).

CBOT July corn fell 10 cents to end at $5.94 a bushel and July soybeans slid 40-3/4 cents to settle at $12.96-1/2 a bushel, dropping below psychological support at the $13-a-bushel mark.

Wheat was pressured by weak export demand for U.S. supplies. Export prices of Russian wheat are softening further in anticipation of a new harvest and amid low demand from global importers, analysts said.

Also, buyers in the U.S. are believed to have last week purchased about 60,000 tonnes of European Union origin wheat expected to be sourced about half each from Poland and Germany, European traders said, underscoring high prices for domestic U.S. wheat.

Meanwhile, planting of the U.S. 2023 corn and soybean crops is advancing ahead of the normal pace while producers and traders monitor dry conditions in portions of the Midwest.

After the CBOT close, the U.S. Department of Agriculture’s (USDA) first corn condition ratings for 2023 pegged 69 per cent of the U.S. crop in good to excellent condition, below an average of analyst expectations for 71 per cent and down from 73 per cent a year ago.

U.S. corn planting is 92 per cent complete, ahead of the five-year average of 84 per cent, and soybean planting is 83 per cent complete, ahead of its five-year average of 65 per cent, USDA said.

The government has projected supplies of corn and soybeans will rise in the 2023-24 marketing year due to forecasts for record harvests.

Plentiful supplies from Brazil also weighed on prices. Agribusiness consultancy AgRural on Monday raised its estimate of Brazil’s total corn crop to 127.4 million tonnes, from 125.1 million tonnes previously.

— Reporting for Reuters by Julie Ingwersen in Chicago; additional reporting by Matthew Chye and Naveen Thukral.

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Soybean and wheat futures also rose, with the agricultural markets posting weekly gains following recent declines to multi-month lows.

Traders added a weather risk premium to the markets ahead of the three-day holiday weekend, with conditions looking “quite dry” in the Corn Belt, said Arlan Suderman, chief commodities economist for broker StoneX. CBOT will be closed on Monday for Memorial Day in the U.S.

On Tuesday, the U.S. Department of Agriculture is expected to issue a weekly update on corn and soybean planting progress and its first condition ratings of the season for the corn crop. The government has projected supplies of both crops will rise sharply in the coming year due to forecasts for record harvests.

However, below-normal rainfall is expected to continue across the Midwest, eastern Plains and Delta over the next 15 days, forecaster Maxar said. The conditions will allow dryness to worsen and expand further, increasing stress on corn and soybeans, the firm said.

Stress from dryness will affect about 40 per cent of the corn crop come early June, according to Commodity Weather Group.

The most-active corn contract ended 13-1/4 cents higher at $6.04 a bushel and touched its highest price since April 26 at $6.06-3/4. Soybeans rose 3-1/4 cents to settle at $13.37-1/4 a bushel, while wheat jumped 11-3/4 cents to end at $6.16 a bushel.

Hopes that the Biden administration and Republicans in Congress will reach an agreement to raise the government’s debt ceiling helped support gains in commodity and equity markets, traders said.

The U.S. dollar was set for a third straight weekly gain amid the closely watched talks on the debt ceiling. A strong U.S. dollar is generally seen as bearish for U.S. grain futures.

— Reporting for Reuters by Tom Polansek in Chicago; additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore.

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Gains in oil prices also pushed up soybeans, which are used in ethanol and biodiesel production, said Tom Dosdall, a commodities broker at Daniels Trading.

“They’re rallying in sympathy with crude oil,” he said.

Chicago Board of Trade soybean futures closed up 9-1/2 cents at $14.86 per bushel after hitting $14.62, the contract’s lowest price since Dec. 20 (all figures US$).

CBOT wheat settled down 9-3/4 cents at $7.00-3/4 per bushel, while corn settled down 1-1/4 cent at $6.33 per bushel.

Wheat and corn futures fell after a deal to export grains by sea from Ukraine was extended, allowing the flow of crops to global buyers, analysts said.

The deal allowing a safe Black Sea shipping corridor to export Ukrainian grain was renewed on Saturday for at least 60 days, despite hopes for a 120-day extension, after Russia said any further extension beyond mid-May would depend on the removal of some Western sanctions.

Russian President Vladimir Putin said Russia would provide grain to African countries for free if the grain deal is not extended in May.

Traders also had their eyes on whether the Federal Reserve will change its benchmark overnight interest rate on Wednesday, as markets remain on edge in the midst of global banking strains.

“Traders, especially small traders, have run to the sidelines in anticipation of the Fed and its decision and they’ll watch to see how outside markets, the bond market, crude oil and the dollar react,” said Mike Zuzolo, president of Global Commodities Analytics and Consulting.

— Reporting for Reuters by Cassandra Garrison in Mexico City and Michael Hogan in Hamburg, additional reporting by Naveen Thukral in Singapore.

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Already dealing with whether the U.S. Federal Reserve will continue to raise key interest rates, the collapse of California-based Silicon Valley Bank and concerns over Credit Suisse have rattled global markets, which included a $4 per barrel drop in crude oil prices on Wednesday (all figures US$).

The May corn contract hit its lowest price since last August at $6.0675 per bushel on Friday, while the May soybean contract had a two-week low of $14.80/bu. on Wednesday, losing as much as 50 cents from one week earlier. The May Chicago wheat contract fell to US$6.61/bu. and May Minneapolis spring wheat was as low as $8.10/bu. on Friday, their lowest prices since July 2021. The May K.C. wheat contract dropped to $7.725/bu., a 13-month low, also on Friday.

However, Sean Lusk, vice-president of Walsh Commercial Hedging Services in Chicago, said that in corn’s case, prices were declining before due to a record liquidation of 147,293 net long positions during the week of Feb. 28, according to the U.S. Commodity Futures Trading Commission’s (CFTC) Commitment of Traders report.

On Feb. 28 “there were just under 69,000 contracts,” he said. “You had no demand on the market. It was prompted by the Fed. In anticipation, you have to raise ending stocks if you have no demand and now you’re seeing prices dip down under $6/bu. in July corn.”

The week ended with corn prices moving upward due to export sales of more than 1.2 million tonnes of U.S. corn to China, as well as increasing wheat prices due to poor soil conditions in the U.S. Plains. Optimism is also growing that Russia and Ukraine will agree on an extension to the Black Sea Grain Initiative, which could pressure prices.

While crop projections out of Argentina continued to be cut due to drought, soybean prices remained in a downturn.

“We haven’t seen the funds blow out their books in beans as we’ve had in corn here,” Lusk said. “The market is heavily inverted. July/November beans are $1.50 over. July/December soymeal is (48 cents/lb.) over. Historically, (the spreads) are extremely high. That’s what’s pulling the market. The market won’t trade to a carry…Until you see a turnover in those spreads, you buy the dips.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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The Dow and S+P 500 closed lower as problems at Credit Suisse piled more pressure on the banking sector.

Declines in equities hit cattle futures in particular because weakness in the economy could dent consumer demand for high-priced beef, said Rich Nelson, chief strategist at brokerage Allendale.

“This is all the outside market story,” he said.

CME April live cattle ended 1.5 cents weaker at 161.55 cents/lb. and touched its lowest price since Jan. 30 at 161.1 cents (all figures US$). April feeder cattle finished 2.5 cent lower at 193.25 cents/lb. and touched its lowest price since Feb. 24 at 192.65 cents.

CME April lean hogs finished down 1.65 cent at 83.75 cents/lb. and set their lowest price since March 7 at 83.575 cents.

“Outside markets and the whole risk-off attitude on everything definitely was in play,” a hog trader said.

Hog futures are too high based on where cash prices and the cutout are trading, the trader said.

The pork carcass cutout dropped by $1.99, to $86.38 per hundredweight (cwt), according to the U.S. Department of Agriculture. Hams sank by $6.34.

USDA said separately that average hog weights rose to 287.1 lbs. in the week ended March 11 from 285.9 lbs. a week earlier.

Traders on Thursday will review weekly U.S. export sales data for beef and pork, after USDA reported poor weekly sales last week.

“End users have backed off on beef and pork buying,” Nelson said. “The quantity they are procuring for future delivery has begun to slip back.”

In Brazil, beef processors are losing $20 million to $25 million per working day after a self-imposed trade ban halted sales to China, agribusiness consultancy Datagro Pecuaria said.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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December live cattle settled 1.475 cents lower at 151.575 cents/lb. (all figures US$). February live cattle dropped 0.625 cent to 154.15 cents/lb. and touched its lowest price since Oct. 19.

Outside markets set a negative tone for cattle, said Matt Wiegand, commodity broker for FuturesOnes. Wall Street ended sharply lower, while oil prices sank.

Weakness in stocks and the risk for a recession raise concerns that consumers will reduce purchases of pricey steaks.

“You’re not seeing a lot of fresh bullish news,” Wiegand said.

Feeder cattle futures were also weaker at the CME, with the most-active January contract slipping 0.25 cent to end at 179.65 cents/lb.

The U.S. Department of Agriculture, in a monthly report, raised its estimate for 2022 domestic beef production, citing higher expected cattle slaughtering and heavier carcass weights. The agency lowered its 2023 production forecast due to tighter supplies of fed cattle and lower cow slaughtering.

Producers have reduced their herds due to drought in the western United States.

For pork, USDA trimmed its 2022 production estimate due to a slower expected pace of slaughter and kept its 2023 forecast unchanged from October. The government raised its forecasts for cattle and hog prices for 2022.

On Wednesday, meatpackers slaughtered an estimated 129,000 cattle, which was unchanged from last week and up from 123,000 cattle a year ago, USDA said separately. Hog slaughtering rose to an estimated 493,000 head from 488,000 hogs a week ago and 479,000 a year ago.

In hog futures, CME December lean hogs eased 0.3 cent to close at 85.275 cents/lb.

USDA quoted the U.S. pork carcass cutout value at $94.12 per hundredweight, down by $1.02 from Tuesday.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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