Corn futures are currently trading near a nine-month low, experiencing a sharp sell-off triggered by a preliminary framework agreement between the US and Iran. This deal aims to end their military conflict, ease sanctions, and reopen the Strait of Hormuz, which has significantly driven down crude oil prices. Lower energy prices reduce production costs for agriculture but also temper expectations for biofuel-driven demand, such as ethanol from corn, net out as bearish for corn futures.
Adding to the bearish sentiment are increasingly comfortable global supply expectations. The US Department of Agriculture (USDA) made upward revisions to Brazilian and Argentine production in its June WASDE report, further enlarging the global balance sheet cushion. Record or near-record harvests in Brazil and Argentina, along with mostly favorable US weather, are reinforcing the outlook for ample feed grain availability into the 2026/27 season. For instance, the US is projected to achieve record corn productivity, while Argentina is also reporting strong ongoing harvest results.
Speculative money has rapidly repositioned, with financial investors making the largest two-week shift toward short positions in corn futures and options since 2006. In the two weeks to June 9, managed money flipped from a net long to a net short of about 5,325 contracts, driven by approximately 92,863 new short positions. This aggressive build-up in shorts underscores the market’s conviction of a negative outlook following the US-Iran framework news and the confirmation of large global supplies.
The easing of geopolitical risk in the Middle East also reduces the probability of fresh energy-driven supply shocks for fertilizer and logistics in the near term. The Iran war risk premium that had swept through crop and fertilizer markets is rapidly evaporating, with urea prices, a crucial crop nutrient, plunging more than 30% since mid-April. This is dragging down prices of corn, wheat, and other farm products, causing the Bloomberg Agriculture Spot Index to fall to its lowest level since March 5.
While the market outlook remains mildly bearish, the heavy speculative net-short position raises the risk of sharp short-covering rallies if weather or geopolitical conditions were to turn less favorable. However, experts note that even with the reopening of the Strait of Hormuz, fertilizer markets may not recover quickly, as it could take months for normal supply routes to become fully functional again, potentially leaving global fertilizer supplies 20% to 30% short of demand.
