A New Storm Cloud Is Throwing Shade on Grain Markets. Here’s What Could Bring Out the Sun.
Nymex crude oil (CLM25) futures last week dropped to a three-week low below $57 a barrel. Worries about declining global energy demand growth hit crude oil hard last week. On April 23, nearby crude hit a high of $64.87 and then quickly proceeded to lose around $8 barrel, or around 13%, before recovering slightly last Friday.
Grain traders took note of last week’s downdraft in the crude oil market, as corn and wheat sold off. Winter wheat futures (ZWN25) reached new contract lows. The daily charts for July corn futures (ZCN25) and June crude oil futures look very similar in their daily price action over the past few weeks.
Indeed, corn traders are closely tracking crude oil daily. And corn is arguably the leader in the grains complex. Soybean futures (ZSN25) hit a three-week low last week but then rebounded to end the week, as the bean bulls showed impressive resilience in the face of selling pressure on corn and wheat.
Grain Market Bulls Need to Have Crude Oil Bulls on their Side
Crude oil is the leader of the raw commodity sector and when oil prices start ailing, other commodity market bulls also generally feel at least some of the pain. The bottom line for grain traders is that crude oil prices at least need to stabilize in the near term for the grain markets to have rally potential.
The two key price levels to watch in June crude oil are last week’s low of $56.39 and the April low of $54.67. There are likely a good number of pre-placed sell-stop orders just below $56.39, which if triggered would likely push prices to test the April low of $54.67. A close in crude oil prices below the April low of $54.67 would be an ominously bearish development for crude oil and for the grain and other raw commodity markets.
A Deeper Dive on Why Crude Oil Is Slumping
Heightened global trade tensions have sparked fears of a global economic recession, which would dampen demand for energy.
The World Bank recently reported that if the global economy grows by 2.3%, which is the consensus projection, commodity prices will likely fall by 12% this year, with a further decline of 5% in 2026. Energy prices are seen dropping by 17% this year and by 6% in 2026, said The World Bank. Some of the largest declines are seen in energy prices.
Brent crude oil (the popular oil used in most of the rest of the world) is set to average $64 a barrel in 2025, down $17 from last year, with a further decline to $60 in 2026. On the supply side, the Bank expects oil supplies to rise by 1.2 million barrels a day this year.
The Bank said its forecast commodity price declines will be the most volatile since the 1970s. “Risks to the commodity price projections are tilted to the downside.” On the positive side, the Bank said the projected decline in commodity prices could lower the global inflation rate by 0.35% this year. This could give global central banks room to lower interest rates.
Grains Do Have a Wild Card in the Coming Months
Grain market bulls are presently squeamish due to down-trending oil prices and global trade tensions. However, grain market watchers need to keep the following in mind: If anything, President Donald Trump’s administration has been mercurial in the past three months. Reports late last week said the U.S. and China both want to have trade discussions as both economies are starting to feel the bite of tariffs. This news boosted U.S. stock indexes to multi-week highs last Friday.
If the U.S. and global stock markets continue to recover, so likely will crude oil and the grain markets.
Importantly, the grain markets are just entering the spring and summer months that typically produce weather-market rallies to varying degrees. A study compiled by Pro Farmer’s Lane Akre shows there was not a significant weather-market scare in the grains in 2024, which is rare. What’s even rarer is two years in a row with no significant weather-market rallies in the grain markets. The grain market bulls do have the weather-market wild card in their vests.
A serious weather-market scare in corn, soybeans or wheat in the coming months would rally the grain markets even if crude oil prices were still trending down.
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On the date of publication, Jim Wyckoff did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.