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Nasdaq-100 has broken the neckline of a six-month double top. Price retested the breakdown level around 24,000 and was rejected - sellers remain in control.

Corn has historically tracked energy prices over a longer timeframe. It has yet to respond to the latest round of energy price spikes driven by the Iran war.

It’s the same story for wheat. Soft commodities appear to be lagging in their historical correlation with crude oil.

Corn price remains depressed, still more than 40% below the Russia–Ukraine conflict highs. There has been no topside breakout yet.

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The Iran war has now entered its fourth week with no meaningful sign of de-escalation. In his latest address to the nation, President Trump made clear that military action will continue for the foreseeable future, at even higher intensity, without offering a concrete exit strategy or committing to a withdrawal timeline. This is hardly surprising. It is an active conflict, and we should take every statement from any party involved with a grain of salt.

Oil market volatility remains extreme, with prices whipsawing on every headline. There is a certain volatility fatigue setting in as participants grow weary of the constant chop. For us, that is usually the signal to look elsewhere: towards markets with more manageable volatility and skewed risk-reward opportunities.

One such space is agriculture. Most people still remember the impact of the Russia–Ukraine conflict on wheat prices. That was a more direct transmission mechanism - both Russia and Ukraine are major wheat exporters, and the disruption was immediately reflected in the market. The current situation, however, is different and considerably more complex. Nearly 30% of global fertilizer trade passes through the Strait of Hormuz from the Persian Gulf to major agricultural economies including India, Brazil and China. In addition, roughly 20% of global liquefied natural gas (LNG) - a key fertilizer feedstock and the primary energy source for producing ammonia, the building block for all nitrogen-based fertilizers - transits the same strait.

On March 19, Ras Laffan, the world's largest LNG terminal, was struck by Iranian missiles and drones. The Qatari facility suffered substantial damage and could take years to repair. The astute reader may already be connecting the dots. With the ongoing conflict and the effective closure of the Strait of Hormuz, global energy prices have surged across crude oil, refined products and natural gas, and fertilizer prices have followed.

When we look at the performance of most agricultural commodities, such as corn, wheat and soybeans, they have all been in a distressed market since the Russia–Ukraine conflict. When farmers face unaffordable fertilizer and diesel costs, it leads to reduced yields. Some may even rotate into crops that require less external nitrogen fertilizer, such as soybeans, and away from corn, which is entirely dependent on synthetic nitrogen because it cannot fix its own. Nitrogen deficiency leads to severe yield loss. To put it simply: rising energy prices drive up fertilizer costs, which in turn drive up soft commodity prices, corn in particular.

The agricultural setup is effectively the third-order effects of the war, behind energy (first order) and fertilizers (second order). Looking at the charts across various agricultural commodities, we believe this theme is still underappreciated. The long-term direction is predictable, even if short-term price action may move in either direction driven by the headlines.

Food for thought: even when we consider the impending global demand destruction driven by higher energy prices, and the stagflationary environment it implies (higher inflation and lower growth), we should remember that people still need to eat. Demand for food is inelastic. And agricultural supply, now squeezed by rising input costs, cannot be conjured overnight as crops need to be planted and grown. When inelastic demand meets reduced and unresponsive supply, prices can only go one way.

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We conclude with the following hypothetical trades:¹

Case study 1: Long Corn futures

If we hold a bullish view towards corn prices, we would consider taking a long position in Corn (ZC) futures at the current price of $481, with a stop-loss below $441, a hypothetical maximum loss of 481 – 441 = 40 points. If the higher food price scenario as we laid out above materializes, corn prices have the potential to climb to $681, resulting in 681 – 481 = 200 points. Each Corn futures contract represents 5,000 bushels and each point move is $50 USD. Mini Corn (XC) and Micro Corn (MZC) futures contracts are also available in 1/5 and 1/10 of the standard size, respectively.

Case study 2: Short Nasdaq-100 futures

If we hold a bearish view towards the U.S. equity market, we would consider taking a short position in E-mini Nasdaq-100 (NQ) futures at the current price of $24,200, with a stop-loss above $25,200, a hypothetical maximum loss of 25,200 – 24,200 = 1,000 points. Looking at Figure 1, if the double top breakdown is confirmed, Nasdaq-100 has the potential to drop to $22,200, resulting in 24,200 – 22,200 = 2,000 points. Each point move in the E-mini Nasdaq-100 futures contract is $20 USD. Micro E-mini Nasdaq-100 (MNQ) futures are also available at 1/10 of the standard size.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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