Grain and vegetable oil futures fall as U.S.-Iran deal raises hopes for Hormuz reopening

Grain and vegetable oil futures fell as expectations grew that a possible reopening of the Strait of Hormuz would improve access to key agricultural inputs, helping ease the food inflation threat caused by months of war in the Middle East.

The United States and Iran said they had reached a preliminary agreement to reopen the strait, ending a conflict that killed thousands of people.

Officials from both countries are expected to meet in Switzerland on June 19 to formally sign the agreement, a step that suggests some details of the deal may still be unresolved.

Hormuz is a major trade route for fertilizers and fuel. Higher farm input costs had pushed up grain and oilseed prices during the conflict.

The surge in energy prices triggered by the war also supported demand for plant-based fuels, which became more attractive as fossil fuels grew more expensive.

The United Nations Food and Agriculture Organization warned in May that a severe global food price crisis could emerge within six to 12 months because of the closure of the strait.

Still, part of the war-driven premium had already started to fade from agricultural markets in recent weeks, partly because of ample global inventories and lower fertilizer costs.

Monday’s losses extended that decline. Wheat, corn and soybean oil futures fell more than 1% in Chicago, while soybeans posted smaller losses. Palm oil fell as much as 0.8% in Kuala Lumpur.

White sugar futures in London also declined. In Brazil, mills can choose whether to produce sugar or ethanol from sugarcane, depending on which product offers better returns.

Lower oil prices tend to weaken the competitiveness of biofuels, giving mills more incentive to produce sugar and increasing global supplies.

The risk of fertilizer supply disruptions may ease after the agreement between Iran and the United States to normalize traffic through the strait, said Anilkumar Bagani, head of research at Mumbai-based Sunvin Group.

Lower energy prices also weighed on soybean oil futures by reducing the profitability of biodiesel production from soybean oil, he said.

“Sustained peace would ease inflation, but that would take some time,” Bagani said.

The decline in palm oil futures was limited because the market was waiting for more certainty on a higher biofuel mandate from top producer Indonesia, said Gnanasekar Thiagarajan, head of trading and hedging strategies at Kaleesuwari Intercontinental.

Demand could recover as access to the Middle East improves, he added.

Reopening Hormuz to shipping could help ease food inflation, potentially reducing pressure on interest rates and supporting a recovery in demand for agricultural commodities, Thiagarajan said.

“However, 2026 will still be an El Niño year, which could hurt production because of below-normal rainfall” in some areas, said Sonal Varma, Nomura Holdings’ chief economist for Asia excluding Japan.

“So we are not completely out of the woods, but this is increasingly positive news for food inflation.”

Source: Bloomberg Línea

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