Grain and vegetable oil futures declined on expectations that a potential reopening of the Strait of Hormuz would improve access to vital crop inputs, easing the threat of food inflation from the months-long war in the Middle East.
The US and Iran said they reached an interim agreement to reopen the waterway, potentially halting a conflict that killed thousands of people and disrupted global trade. Officials from the two countries will meet in Switzerland on June 19 to formally sign the agreement, suggesting aspects of the deal may be unresolved.
Hormuz is a key conduit for fertilizer and fuels used by farmers, and its shutdown boosted crop prices. The United Nations’ Food and Agriculture Organization had warned in May that a severe global food price crisis could set in within six to 12 months due to the strait’s closure.
“It is modestly bearish for agricultural prices and supportive for crop supply,” Tobin Gorey, a strategist at the Commonwealth Bank of Australia, said by phone. However, it remains unclear whether this is a lasting resolution or another step in the negotiating process so “markets will want evidence, not just announcements.”
Some of the war-driven price premium had already begun to fade across crop markets in recent weeks, partly due to ample global stockpiles and a decline in fertilizer costs.
