Grain markets face a potential threat from a new weather disturbance. Here's what could possibly clear up the situation.
Straight Up Take:
Last week, crude oil prices took a nose dive below $57, hitting a three-week low. The drop in crude sent shockwaves through the grain markets, with corn, wheat, and soybeans all feeling the burn. It's like when the dealer busts at the blackjack table, and everyone else at the table is thinking, "Here we go again."
The oil market's downturn has been a headache for grain traders who rely on steady energy prices for rally potential. If crude oil doesn't shape up soon, the grain markets might as well start polishing their some-day-soon glasses. The two key price levels to watch are last week's low of $56.39 and the April low of $54.67. A close below the April low would mean a bear market for both crude and grains.
Bottom line: Grain bulls need crude oil bulls to be happy campers if they want the market to rally.
The Skinny on Why Oil Prices Keep Sinking
The gloomy mood across the global economy and the jaw-dropping uncertainty over trade wars have Deal-Death spelled all over them. Both are casting a long, dark shadow over energy demand, which translates into fewer gallons of gas in the pump and, as a result, less money in oil dudes' pockets.
The World Bank's not mincing its words, warning that if this economic growth projection of 2.3% pans out, commodity prices will tumble by around 12%. Energy prices are forecasted to drop by eye-popping 17% in 2025. Ouch!
Brent crude (the big kahuna of oil) is looking at an average of $64 a barrel this year, dropping to $60 in 2026. But fear not, oil supply is expected to shoot up by 1.2 million barrels a day this year.
With such a wild ride ahead, the World Bank's crystal ball's saying that commodity price declines are the most volatile since the 1970s. And the risks are tipping towards the downside. But hey, if the silver lining's ever gonna shine, it'll be in the form of lower inflation and a chance for global central banks to slash interest rates.
Grain Watchers: Time to Worry or Time for a Chill pill?
With oil prices taking a turn for the worse, grain bulls are tucking their horns between their knees. But take a deep breath, smell the fresh spring air, and remember: President Trump's White House loves a good twist of fate. Reports have it that both the U.S. and China are keen on returning to the negotiating table. Voilà, a possible rebound for crude oil and grains.
The spring and summer months are the grain market wild cards. Historically, these months have seen weather-market rallies. This year? Nada. In fact, back-to-back years with no significant weather-market rallies are about as rare as a snowstorm in July. So, while market jitters are understandable, give the grain bulls a round of applause for their resilience in the face of corn's and wheat's downfalls.
A sudden weather-market scare could still turn the tide in the grain markets, even if crude oil prices remain bearish. So, stay tuned, keep your chins up, and stay gold, you gorgeous, strong grain bulls.
Wanna chat more? Email me at [email protected].
Disclaimer: On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this spiel. All info and data in this article are just for your entertainment and should not be treated as financial advice.
- The drop in crude oil prices has sent shockwaves through the futures market for grains, causing corn, wheat, and soybeans to sell at lower prices.
- The bearish sentiment in the oil market is a concern for grain traders who need steady energy prices for rally potential in the grain market.
- The World Bank has warned that if the global economy grows at its forecasted rate of 2.3%, commodity prices, including grains and energy, will tumble by around 12%.
- Brent crude is expected to have an average price of $64 a barrel this year, dropping to $60 in 2026, while oil supply is anticipated to increase by 1.2 million barrels a day this year.
- grain Watchers should not be too alarmed by the current bearish prices, as weather-market rallies during the spring and summer months could still turn the tide in the grain markets.
- Environmental science, climate-change, and finance industries may benefit from lower commodity prices, as they could reduce inflation and lead to interest rate cuts by global central banks.
- In the sports world, the weather could play a crucial role in the overall performance of the grain market, making it an unpredictable domain similar to the field of play.
