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By: Mike Castle, Market Intelligence - Fertilizer Analyst
Guest Commentary by Mike Castle
Senior Commodities Economist
July 15 – We’re back to good news being good news, with the stock futures jumping in response to another round of good news on the inflation front this morning, as headline Producer Price Index (PPI) showed deflation in June, falling 0.3% month-on-month versus market expectations of holding flat. This is leading stock futures to point to a roughly flat open as traders weigh the improving inflationary picture against fresh geopolitical escalations both in the Middle East and Black Sea. The VIX meanwhile remains muted, falling to hover near 16.15 at the time of writing, close to a fresh low for the week. The dollar is in the red again, trading near 100.85 after sharp losses yesterday in the wake of the cool CPI data. Treasuries are in the red as well, with 10-year yields trading below 4.60% and 2-year yields trading near 4.16%. Crude oil is slightly in the green after big gains to start the week, with nearby WTI trading around $80.20 and nearby Brent trading around $85.20 at the time of writing, both roughly in line with where they sat one month ago. The ags are mostly higher to start the day, led by the wheat complex in response to rising tensions in the Black Sea that we’ll outline in more depth below.
In year-over-year terms, June PPI was up 5.5%, well below the expected 6.2%, while May was revised down notably to now show a 6.0% year-over-year gain instead of the previously reported 6.5%. This follows an overall much cooler than expected consumer level inflation reading yesterday. However, the core inflation story diverged a bit between yesterday’s CPI and today’s PPI. Core PPI rose by 0.2% month-over-month and 4.7% year-over-year, both falling below market expectations but not quite as favorable as the flat core CPI reading seen yesterday. May core PPI numbers were revised downward as well, now showing a 0.1% month-over-month and 4.6% year-over-year rise, leading to the June data showing slight increases—again, much better than expected, but not quite as pretty as the declines seen at the consumer level. The market is happy to celebrate another round of better-than-expected news as hawkish rate expectations get trimmed slightly, but don’t lose sight of the potential for this dip being short-lived given the combination of existing pipeline inflation, illustrated in the graphic below, coupled with July’s rebound in energy prices amid escalating strikes between the U.S. and Iran.
Escalation in the Black Sea is driving a surge in the wheat market this morning, with U.S. wheat futures up double digits across the board while Matif wheat has risen to a more than one-year high. We outlined yesterday the market’s insensitivity to headlines in this conflict in recent years coming up against the novelty of the most recent round of escalation, notably with Ukraine showing an unprecedented ability to target Russian shipping, previously concentrated in the Sea of Azov that ultimately led Russia to halt movement through the Kerch Strait but now spreading to the Black Sea itself, and concerns regarding Russia’s response to this newfound ability. That is now playing out, with Russia carrying out heavy strikes on Ukrainian ports again, leading to export operations at Chornomorsk being halted again, while a vegetable oil terminal in the Odesa region was reportedly damaged amid widespread heavy strikes there. Additionally, vessels themselves are being targeted by Russia, with a vessel reportedly heading to load corn at a Bunge facility for shipment to Italy being hit at anchor, and Russia reporting strikes on at least four vessels in the ports of Chornomorsk and Dnipro-Buh. On the other side, Ukraine reportedly hit around 20 Russian vessels in the Black Sea overnight, a clear escalation following strikes on over 100 vessels in the Azov in recent weeks. The big question the wheat market is now scrambling to answer is whether the expansion in Ukrainian strikes in the Black Sea will ultimately spread to the most critical Russian ports, like Novorossiysk, the top outlet for Russian wheat exports—especially given the backdrop of Azov shipments potentially needing to be re-routed to the Black Sea to avoid the Kerch Strait.
Western Europe doesn’t exactly have a bumper crop to make up for a potential loss in Russian/Ukrainian wheat shipments, with the ongoing hot, dry pattern taking its toll on production. To that end, France’s farm ministry today forecast the country’s 2026 soft wheat production at 32.0 million metric tons, with a 7% drop in yields more than offsetting a 3% increase in plantings to cause an overall drop of roughly 4% compared to last year’s crop. The ministry also cut their expectations for barley production, while noting that the damage to corn and other spring crop yields was not yet quantifiable. There’s chatter that neighboring Germany will see reduced production as well, with harvest now starting. While the focus is on the wheat side today, don’t lose sight of the impact on corn either. Forecasts show central/eastern Europe catching a cooler, wetter break in the 6-15 day window, but top E.U. corn producer France continues to lean hotter than usual with precipitation chances remaining limited. While this production is limited in its global scale, it could ultimately keep support under demand for U.S. corn exports through the 2026/27 marketing year.
Average 30-year mortgage rates rose to a seven-week high at 6.65% in the week ending July 10, up from 6.58% in the week prior. This matches the nine-month high seen back in May, reflecting the ongoing spike seen in 30-year treasury yields that are sitting above 5.12% at the time of writing, within shouting distance of the 19-year high made around that same time in May. In turn, overall mortgage applications fell by 2.7% week-over-week, the sharpest weekly decline seen in four weeks. Interestingly, refinancing applications rose by 3.5% week-over-week, albeit from a five-week low, while applications for new purchases fell by 7.3% week-over-week, putting the Mortgage Bankers Association’s Purchase Index at its lowest level since February. That’s not an encouraging sign, but the housing market will get fresh data to parse through in the days ahead, with June Pending Home Sales due out tomorrow and Housing Starts/Building Permits due out on Friday.
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Ukraine's sustained strikes on Russia's tanker fleet have shut down shipping through the Azov Sea, forcing Russian wheat exporters to find costlier routes to market. Bertrand Oesterle unpacks how the disruption is reshaping Black Sea wheat logistics, freight costs and futures pricing.
July 15 – We’re back to good news being good news, with the stock futures jumping in response to another round of good news on the inflation front this morning, as headline Producer Price Index (PPI) showed deflation in June, falling 0.3% month-on-month versus market expectations of holding flat. This is leading stock futures to point to a roughly flat open as traders weigh the improving inflationary picture against fresh geopolitical escalations both in the Middle East and Black Sea. The VIX meanwhile remains muted, falling to hover near 16.15 at the time of writing, close to a fresh low for the week. The dollar is in the red again, trading near 100.85 after sharp losses yesterday in the wake of the cool CPI data. Treasuries are in the red as well, with 10-year yields trading below 4.60% and 2-year yields trading near 4.16%. Crude oil is slightly in the green after big gains to start the week, with nearby WTI trading around $80.20 and nearby Brent trading around $85.20 at the time of writing, both roughly in line with where they sat one month ago. The ags are mostly higher to start the day, led by the wheat complex in response to rising tensions in the Black Sea that we’ll outline in more depth below.
Brazil's record corn production has reshaped global grain markets, but the forces that delivered bumper harvests may not be enough to sustain future growth. As profit margins tighten and competing crops become more attractive, South America's largest producer could enter a new phase of slower expansion.
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