Rising Middle East tensions have so far had a muted impact on the grain and oilseed markets, but much still depends on the potential for a wider conflict between Israel and Iran.
Stephen Nicholson, Rabobank’s Global Sector Strategist for Grains and Oilseeds, said a sudden leap higher in crude oil or the possibility of the conflict tipping some global economies into recession could be factors that influence ag prices going forward.
“It’s complicated; but that’s just the way our world is these days,” Nicholson said in an interview earlier this week.
Going home last Friday, the grain markets rallied on talk Iran was preparing to hit Israel over the weekend as payback for a previous strike on the Iranian embassy in Syria – an attack that Israel never confirmed or denied. Iran did indeed act, launching some 300 missiles and drones at Israeli territory, most of which were intercepted and did little damage.
However, the world is now waiting to see when and how Israel may retaliate, even as some of its allies, the US included, urge restraint.
Crude oil tends to act as bellwether for most other markets in such situations, Nicholson said, although he noted oil didn’t respond all that strongly back in October when Israel was attached by Hamas militants, igniting off the current ongoing conflict in Gaza.
“When the rest of the world’s hair was on fire, the crude market just went, ‘ok, fine.’”
Crude has risen over the past few months, but Nicholson attributed that more to OPEC+ production cuts aimed at tightening global supplies.
Gains in crude oil typically support corn and soybean prices, because of both crops' use as a feedstock in biofuel production.
Nicholson said the ag markets are also concerned about the potential for global recession, something that could negatively impact demand for ag commodities and prices.
Earlier this week, US Treasury Secretary offered a similar warning about the potential for global economic damage resulting from the possible expansion of Middle East conflict, adding the Biden Administration was preparing new sanctions against Iran.
At the end of the day, Nicholson said the latest geopolitical developments are further ramping up the stakes for markets already faced with a continuing war in Ukraine, high inflation, rising interest rates and a world where people just seem “madder at each other.”
“I kind of describe them as markets on the edge,” he said.
