Premarket stocks: Global food prices are finally falling … but for how long?

Breaking it down: Let’s stick with wheat prices. There are a few reasons they’ve dropped almost 45% from their March highs and are down nearly 25% since the beginning of May, per wheat futures traded in Chicago.

A lot of speculative activity tied to the outbreak of war in Ukraine has pulled back as investors take profits, Allen said. Traders have also been reconfiguring their portfolios to brace for a possible recession, which could hit demand for some agricultural products.

In theory, that should help ease some supply concerns. Ukraine, a major wheat supplier, expects to harvest 50 million metric tons of grain in 2022 and has said it will need to export 30 million metric tons.

But Allen said there are huge risks to the outlook, and predicts another sharp rally in wheat prices is coming. She thinks they could jump another 20% and 30% just to reflect actual conditions in the market.

The United Nations has said that the first shipment of Ukrainian grain under the Black Sea deal will move within days. But there are major questions about the tenability of the accord following Russia’s strikes on the port of Odesa Saturday.

The logistics around transporting grain from a dangerous war zone are also complex and will require buy-in from a matrix of commercial and government players.

Scorching heat in the Northern Hemisphere could also jeopardize future crop yields, Allen said. Plus, we’re entering a period where demand traditionally ramps up, adding to strain on supply.

“There’s a lot of vulnerability in this market,” Allen said.

On the radar: The FAO Food Price Index for June was still 23% higher than it was one year earlier. And Máximo Torero Cullen, the organization’s chief economist, warned that many of the dynamics that initially pushed up prices haven’t gone away.

“The factors that drove global prices high in the first place are still at play, especially a strong global demand, adverse weather in some major countries, high production and transportation costs and supply chain disruptions due to Covid-19, compounded by the uncertainties stemming from the ongoing war in Ukraine,” Cullen said.

Walmart slashes profit outlook as it marks down goods

America’s biggest retailer is faced with a tricky problem: It has too much stuff on its shelves that people don’t want to buy as they watch their wallets.

Lower prices may be cause for celebration among shoppers, but for Walmart and its investors, it means lower profits.

Other retailers are getting battered, too. Amazon’s stock is 3% lower, while Target is off 5%. Macy’s and Kohl’s are both down 4%.

The takeaway: If stores are starting to slash prices, that could help ease inflation. But they only have so much room to discount without absorbing huge losses themselves — something most companies are loath to do.

The company, whose top brands include Ben & Jerry’s ice cream and Dove soap, has raised prices for six consecutive quarters as it works to offset higher ingredient costs for its products.

“The external environment remains very challenging,” CEO Alan Jope said on a call with analysts.

Stocks are on track for their best month of the year

The Dow is up almost 4% in July. The S&P 500 has jumped 4.8% and the Nasdaq Composite has soared 6.8%.

The big question: Will the good times last? Some analysts argue that there are few reasons left to sell, with a lot of skepticism already baked in.

Still, sentiment has hardly turned a corner. The CNN Business Fear & Greed Index remains in “fear” territory.

Earnings from the biggest American companies could also provide fresh volatility. A deluge of data lies ahead this week, including earnings from Google, Microsoft, Facebook parent Meta, Apple and Amazon.

The Federal Reserve’s upcoming policy announcement could also generate turbulence if Chair Jerome Powell is more hawkish than expected, raising fears the Fed could be so aggressive it tips the US economy into a recession. If it’s too dovish, however, concerns will rise that the central bank won’t be able to get inflation under control.

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Coming tomorrow: The Federal Reserve is expected to hike interest rates by another three-quarters of a percentage point as it fights price rises.