Grain Prices Tumble on US/Iran "Progress"

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🛢️ Oil prices tumbled over 5% on Wednesday as Trump announced US-Iran negotiations are nearing a final stage, sending WTI crude to $98.26 per barrel. Analysts warn the market may be underestimating the long-term risk of supply disruptions through the Strait of Hormuz.

🌾 Wheat, corn, and soybean futures all closed lower, pressured by falling crude prices and uncertainty over China's confirmation of a $17 billion agricultural purchase deal. China's Ministry of Commerce acknowledged expanded trade but did not confirm the figure cited by the White House.

🏦 The Federal Reserve is signaling a more hawkish stance, with officials suggesting rate hikes may be necessary if inflation — currently at 3.8% — continues to climb. Markets are now pricing in a 51% chance of a 25-basis-point hike by December, putting incoming Fed Chair Kevin Warsh on a collision course with Trump's push for cuts.

⛽ US ethanol production hit a seasonal high last week at 1.11 million barrels per day, up 12% from the same period last year. Margins across the Corn Belt remain strong, ranging from 10 to 40 cents positive.

🥩 Cargill locked out roughly 1,700 workers at its Fort Morgan, Colorado meatpacking facility after employees rejected a contract proposal, halting slaughter operations that were processing around 4,000 head per day. This comes as President Trump calls on the DOJ to investigate major meatpackers for potential price collusion, with packers currently losing upwards of $300 per head.

Transcript

US/Iran/Crude

SPEAKER_01 0:08

Morning guys. It's Thursday, May 21st, 5 24 a.m. Central Time. Grain markets are lower again this morning. December corn futures down five cents at 484 and a quarter. November soybeans down eight and a quarter at 11.85 and a quarter. July Chicago wheat down 11 and a quarter at 649 and a quarter. July Kansas City wheat down 13 and three quarters at 685. September spring wheat down six and a quarter at 610. Let's start off with crude oil and the Middle East.

SPEAKER_00 0:35

So WTI crude fell more than 5% yesterday to close near $98 per barrel, marking its largest one-day decline in two weeks. The sell-off followed comments by President Trump, who said negotiations with Iran are in the final stages. Trump offered no timeline for a resolution. However, he did warn that Tehran must reach an agreement or the U.S. would resume strikes. A threat that has been thrown out there numerous times since uh the conflict began in late February. Meanwhile, analysts caution that the market is underpricing the risk of long-term disruption to oil supplies through the Strait of Hormuz.

SPEAKER_01 1:11

Crude oil futures fell yesterday. They dragged the grain markets along with uh that sell-off. We'll talk about that here in a second. Bloomberg reporting this morning that Iran, Iran, the pronunciation police have been after us in the comments. Oh, geez. Losers. Um, in any case, uh, U.S.'s latest proposal has narrowed the gaps. I feel like we've seen this story before. Crude oil is lower. We're down below 100 bucks in the WTI futures this morning. We are very much in the middle of the post-Iran trading range, which really is like 80 bucks up to 120. So it's in a 98. We're close to the middle. If history is to repeat itself, you'll see some sort of Trump uh truth social post this weekend and will escalate again. And he'll say, Iran didn't agree to this. We're gonna end their civilization or whatever. That's kind of the way that this has been going, just a lot of back and forth. So there's progress, but we're gonna put the word progress in quotes because I don't know if there is actually any progress at all. But uh in any case, the weaker

Grain Prices Tumble / US Weather

SPEAKER_01 2:14

crude oil prices and the optimism that the some people have apparently about this situation also bled into the grain markets yesterday.

SPEAKER_00 2:22

Wheat futures moved lower yesterday with the July 26th, with the July 26th Chicago wheat contract losing roughly seven cents to close near 661 per bushel, while the July Kansas City contract fell uh five cents to settle around 699 per bushel. Futures, of course, were pressured by a lack of confirmation from China on the White House's announcement of large agricultural purchases. Additional pressure came from from uh falling crude oil prices. Corn and soybean futures also finished the session lower. The December 26th corn contract fell nearly nine cents to settle near 489 per bushel, while the November 26th soybean contract lost roughly 10 cents to close around 1194 per bushel.

SPEAKER_01 3:04

All right, so grain markets got bit beat up a little bit yesterday and were lower again this morning. Um, crude oil is actually higher this morning, but I think that the um I think the crude oil situation and yesterday's sell-off probably had something to do with the sell-off in the grain markets. I also think U.S. weather is becoming a topic that traders are paying more attention to. And we'll do some weather stuff here in a second. Let's look at some charts. Dece corn still looks okay from a technical standpoint. You would probably like to avoid a close below 481 today. That's um where the trend line sits that comes up off the January low through the April low. I think that's an important level. If you break out below 481, maybe that April low around 469 and a quarter would be some sort of support area. Uh November beans trend supports down at 1170 today. So you got a little ways to go. Bearish U.S. weather, we'll get to that in a second. China has not bought any new crop U.S. soybeans. I feel like the way that the market's priced, I feel like there's some optimism regarding potential purchases. Maybe you'll see some flash sales reported soon. As I've mentioned in the past, if China is to is to buy ultimately 25 million metric tons of new crop U.S. soybeans, as the White House has alluded to, I think they're going to need to start pretty soon. HRW week trades below some initial trend support today. That was a pretty steep trend line, though. Maybe it just wasn't sustainable. Your next area of trend support's about 631. You've still got a gap on this July Kansas City chart at 609 and three-quarters. To look at some weather, I mentioned that maybe weather is playing a role here. Rain makes grain, of course. You've had quite a bit of rain around the corn belts over the last week, heaviest amounts on the Iowa-Missouri border, um, also southern Indiana, southern Illinois, parts of central Illinois caught a lot of rain. It hasn't been everywhere, and some areas don't need it, but some areas do need it. And you know, rain post-planting is generally considered to be a good thing. Temperatures have warmed up a little bit. Um, Dakotas have been kind of scattered. Those western areas of Kansas and eastern Colorado and HRW wheat country have really still been pretty dry. And I think the trade and myself at least feel like that whole thing is a done deal. That wheat crops toast, it's just a question of how bad is it. And, you know, there's there's still a lot of concern. We'll do the drought monitor tomorrow. There's a lot of concern about drought in the um, like Mackenzie out in your neighborhood, you know, far western corn belt in the plains. Um, people who are planting corn and soybeans worried about this drought situation. Um, it's it's definitely a concern. The forecast offers a lot of rain for like the mid-south and also uh some of the southern plains and some of the central plains over the next seven days. I don't know if that Euro model is correct or if the GFS is correct. You look at like Nebraska and up into places like that, there's there's a little bit of a difference there. So we'll see if the rains actually hit. There's more rain for the central corn belt during the um call it eight to 10 day period, the way that it looks. So I don't think lack of rain for the corn belt is a problem right now. To look at this through perhaps a different lens, here's some stuff from our friends at Crop Profit. Based on Euromodel data, our friends at Crop Profit project that over the next seven days, U.S. corn areas will see 113% of normal rainfall. And during the next uh, or during the eight to 14 day period, rather, 102% of normal rainfall. So there's not really not really a lack

Fed Minutes, Inflation

SPEAKER_01 6:20

of rain in the corn belt right now. And we are uh getting into weather market season, certainly. The uh kind of unofficial kickoff to weather market season is Memorial Day weekend, which is coming up.

SPEAKER_00 6:29

The Federal Reserve appears to be shifting towards a more hawkish stance. Minutes from last month's meeting indicate that a majority of officials believe interest rates may need to rise if inflation continues to exceed the Fed's 2% target. Policymakers are increasingly concerned about inflationary pressures driven by by the Iran war. Financial markets are now pricing in a strong chance of a quarter uh of a 25 basis point rate hike by the end of the year. Incoming Fed chair Kevin Warsh will face an early test in balancing inflation with political pressure from President Trump, who has stated he would like to see rates cut.

SPEAKER_01 7:07

Yeah, I don't want his job at all. Um, so I was looking at the CME Fed tool today. Um, basically, it says this likelihood of Fed rate cuts. Treasury treasury markets imply there's a 10% chance of a rate hike in July. So probably not gonna happen. 25% chance of a rate hike in September, still unlikely, 35% chance in October, 51% chance by December. So treasury markets are uh perhaps not pricing in the idea that there could actually be a hike, a hike by the end of the year, where just a couple weeks ago it was like that wasn't even close to being on the table. They were still talking about just waiting to cut um, you know, sometime early in 2027. Here is a graphic from Bank of America Global Research. And essentially what this says is that if inflation continues at its current uh post-Iran trajectory, we'll be uh 5.2% CPI by November. And that's pretty scary. We're 3.8% right now, and things feel pretty inflation-ish. You know, you look at gas prices, it feels like things are starting to get a little bit more expensive, even under um a slightly better case scenario, 4.4%, 3.7% under best a better case scenario, 3% best case scenario. But um, even if they reopen the straight of four moves tomorrow, I mean, yeah, you'll see crude drop and you'll see gas price prices drop to some extent. But this thing could be sticky for a little while. Calci has some odds on this. How high will inflation get this year? Uh, 5 to 5.1% is kind of what the um betting markets are pricing in. If you're to uh put any uh stock in that gas price is still a big problem. Uh 456 national average for regular unleaded, that's up $1.38 per gallon or up for 43% versus a year ago. Diesel is even worse, up $2.11 per gallon or up 59% versus a year ago. So this fuel price thing is is certainly leading the inflationary charge, but it's bleeding into a lot of other things as well.

SPEAKER_00 8:58

If you guys have not checked out our premium content, you sure need to do so. Joe, can you tell our viewers about some of our recent premium videos?

SPEAKER_01 9:05

Matt Bennett was on yesterday for a 20 questions segment in these videos. We take uh grain marketing, grain market questions from our premium subscribers. Sell now or wait till China buys. Of course, we always have grain market questions, and they're always they always boil down to the same thing. Hey, should I sell or not? But you know, we put this in in some context. We talked about a lot of specifics like is it old crop, is it new crop, what's your storage situation? Um, we talked about cash spreads, um, a whole bunch of other stuff yesterday, really good stuff with Matt. Lewis Stearns was on to talk cover crops um earlier this week. Uh Ryan Bennis was on to talk about winter wheat claims in particular. Also did some Arc PLC stuff, talked about rising wheat prices uh in the context of uh crop insurance and the upcoming uh discovery period for uh your harvest price option for winter wheat. Um if you guys want to see the premium stuff, go to standardgrain.com. You can sign up this morning. This is a $50 per month subscription. Uh, you can cancel at any time, no other fee, no other obligation, nobody to try to sell you anything else. We just blast out a ton of content to our premium subscribers. If you are the decision maker in your farm operation, if you do the marketing, if you buy the crop insurance, if you borrow the money, if you manage the people, uh you should watch uh this stuff. This this stuff will help you to make decisions. We've got videos on like every topic that affects you guys, whether it's grain marketing

Ethanol Production

SPEAKER_01 10:20

or transition planning or farm budgeting or um crop insurance. I mean, all that stuff is stuff that we cover on a daily basis. Give that deal a shot this morning, guys.

SPEAKER_00 10:29

U.S. ethanol production rose to a seasonal high last week. Weekly output was reported at 1.11 million barrels per day, up 2.7% compared to the prior week and up 12% versus the same week last year. Ethanol stocks climbed to 24.88 million barrels. The print was up slightly compared to the previous week, but down 2.2% compared to the same week last year. According to Reuters data, U.S. ethanol margins currently range from 10 cents to 40 cents positive across the corn belt.

SPEAKER_01 10:57

Yeah, that's a really great print, seasonal or otherwise, just in general. I think we're pretty much on track now or back on track to hit USDA's target for corn demand via ethanol current marketing. And if we're not,

Cargill Lockout

SPEAKER_01 11:09

it's not by a lot. So I think we're close. All is well here. Ethanol stocks trending lower and will probably continue to trend lower uh here for the next couple of months.

SPEAKER_00 11:18

Cargill initiated a lockout at its meatpacking facility in Fort Morgan, Colorado yesterday. The meat giant stopped paying roughly 1,700 workers at the plant after employees rejected a contract proposal. Slaughter operations at the plant have been suspended since April 23rd amid ongoing labor negotiations. And those labor negotiations have been going on since February. Well, workers have not actually gone on strike. Cargill implemented the lockout to take control of the situation. Meanwhile, as we've talked about, President Trump has accused major meat packers of price collusion and has called on the DOJ to investigate industry practices. This comes at a time when packers are losing upwards of $300 per head. So it's needless to say that it's not the best time.

SPEAKER_01 12:02

Um that's a bad look for Cargill. I mean, they didn't even go on strike and they just locked him out.

SPEAKER_00 12:06

Right, exactly. They they just wanted to take control of the situation. Uh I mean, they were going back and forth still with contract negotiations. As I stated, they quit slaughtering cattle almost a month ago, which is interesting. Obviously, the cattle markets sold off yesterday on this headline. They did claw their way back. Feeders uh they were higher, um, but they haven't been processing cattle now for a month. Um, and again, we saw JBS have uh contract negotiations back and forth about a month ago when they finally got it settled. Um, this is nothing new uh with workers going on strike or threatening to go on strike against uh packers just trying to get um a few more benefits.

SPEAKER_01 12:46

In the grand scheme of meat packing plants in the United States, is this one considered to be large, medium, small?

SPEAKER_00 12:52

Um, it's pretty good size. They have a max capacity right around 4,700 per head. Uh, before the stoppage started a month ago, um they were killing right around 4,000 per day. But again, it had no impact on the market a month ago when they actually stopped killing cattle. So, in all reality, this shouldn't have an impact on what we see in the markets.

SPEAKER_01 13:12

Outside markets mixed this morning, fairly quiet. Stock markets off just a little bit, uh, treasury's off, US dollars a little bit higher, crude oil is now up a dollar sixty six in the July WTI 99.90 last trade. Have a great day, guys. Back on Friday.