The fragile Middle East truce has knocked down the prices of crops that are tied to oil.
The price of crops around the globe has been impacted by a shaky truce between Iran and Israel, especially those that can be converted into biofuels. Prices are affected by the price for crude oil.
The price of crude oil dropped sharply after President Trump announced a ceasefire. This hit futures contracts and stocks for vegetable oils like Malaysian palm, European rapeseed and Chicago soyoil.
John Duvenaud, Winnipeg, Canada's crop markets analyst, said that the fall in vegetable oil prices was "totally connected" to the collapse of crude oil futures on Monday and Tuesday. Crude oil futures fell over 13% at midday on Tuesday.
Canola, sugar, palm oil, and soybeans can be used as energy feedstocks in the production of biodiesel or ethanol. These products are alternatives to fossil fuels. Crops like canola and soybeans benefit from a rise in crude oil prices. These crops can be hammered when crude oil prices slump. The hammer fell in the first two weeks of this year.
"Soyoil trades like energy." When crude oil has an epic collapse within 36 hours, it is obvious that soybeans will be affected. Ted Seifried is the chief market strategist at Zaner Ag Hedge.
The Chicago Board of Trade benchmark soybean oil futures have already given up all of the gains made last week due to the favorable U.S. policies that increased the blending of biobased diesel into the U.S. gasoline supply.
Rodrigo Martini is the head of sugar and alcohol at StoneX.
Up until this week, most biofuels had been on a tear of growth. Some reached highs that hadn't been seen since September 2023.
War between Iran and Israel with the potential to stop oil exports out of the Persian Gulf has boosted crop prices which have been increasing since mid-March. The news of a ceasefire reversed this rise.
Crude futures soared by over 10% on the day of Israel's surprise attack against Iran. On June 13, gains were also seen in European rapeseed and Canadian canola, as well as Chicago soyoil.
Analysts say that when Trump posted on his social media about a possible ceasefire between Israel, Iran, and the United States, and demanded both countries to adhere to it, crude oil sold and took down biofuel crops along with it.
Analysts said that biofuel crops do not have a 1:1 relationship with fossil fuel stocks. Most of these crops are grown for human consumption and animal feed. Their energy potential is therefore secondary.
Tony Tryhuk is a trader and analyst at RBC Dominion Securities. He cited good rains in much of North America’s prime farmland as well as technical factors and fund positions that contributed to the sell-off.
Analysts say that markets sometimes view agricultural products such as canola oil, palm oil, soyaoil and sugar for their energy values.
The price of raw sugar futures at the Intercontinental Exchange fell to a record low for four years on Tuesday. (Reporting from Winnipeg by Ed White; additional reporting in New York by Marcelo Teixeira and Karl Plume. Emily Schmall, David Gregorio and Emily Schmall edited the story.
(source: Reuters)
