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Perspective: Morning Commentary for July 17

By: Arlan Suderman, Chief Commodities Economist

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July 17 – Chip stocks are again under pressure amid concerns about whether AI investments will meet expectations, leading to a roughly 2% selloff in Nasdaq futures this morning. The VIX elevated to a nine-day high above 19 this morning, while the dollar index traded near 100.9. Yields on 10-year Treasuries traded near 4.53%, while yields on 2-year Treasuries trade near 4.14%. WTI crude oil pushed higher to trade near $82 per barrel, while Brent traded near $87 per barrel. The grain and oilseed markets were mostly higher again overnight as Black Sea risks increase amid rising domestic and global demand prospects.

The world seems focused on the Persian Gulf and the Sea of Hormuz when perhaps the bigger story has been developing in the Black Sea. The primary reason for the change is Ukraine’s impressive development of drone technology that allowed it to first target Russia’s energy infrastructure deep inside of the country. The objective was to reduce Russia’s ability to fund the war while also reducing the amount of fuel available to supply troops and equipment on the frontlines. Ukraine expected Russia to make the war its priority for limited energy supplies, but that would leave consumers short, eroding public support for the war in Russia. The second objective then was to directly strike at Russia’s ability to export crude oil and products to generate revenue, as well as Russia’s ability to ship fuel and supplies to the frontlines in Ukraine. As such, Ukraine struck first at Russian export facilities and then focused on direct hits on ships in the Sea of Azov carrying fuel, crude oil and other supplies related to the war effort, or related to revenue generation to support the war. As many as 147 Russian-linked ships were hit within an 11-day period, shutting down the Kerch Strait and the Sea of Azov. But some of those ships were also in the Black Sea near the key Russian port at Novorossijsk, including a couple of big crude oil tankers.

Russia hit back by doubling down on striking Ukraine grain export facilities, and then it started directly hitting grain ships, effectively shutting down Ukraine’s over-water export capacity. Ukraine will seek other avenues for export, as it did in 2022, but it can never be as effective in supplying the world with wheat when its ports are shut down. Russia has lost the Sea of Azov for exporting crude oil and wheat, and it is very close to losing the major alternative port at Novorossijsk if / when Ukraine starts to target grain ships near that port. Insurance rates for all shippers in the Black Sea anywhere near these ports are soaring, and shipping companies are increasingly reluctant to take the risk. Novorossijsk isn’t shut down yet, but that day may be coming, and it could happen any day. Russia was expected to export 47.5 mmt or 1.745 billion bushels of wheat this year, while Ukraine was expected to export 14.5 mmt or 533 million bushels of wheat and 23 mmt or 905 million bushels of corn. We haven’t lost all of that, but we are losing enough of it to create concerns in the market. Yes, we’ve seen prices rally on the increased risk, but the market seems to assume that grain will find a way to fully flow again like it did in 2022. But the dynamics are different now, with both Russia and Ukraine having more advanced drone technology to more effectively hit those alternative routes than what was available in 2022. I haven’t even touched on the ramifications of Ukraine’s strikes flipping Russia from a major exporter of diesel fuel to a significant importer of it. Wheat is a major food staple, while corn is essential for meeting the world’s rising appetite for meat protein, while also now increasingly needed for biofuel production in a world lacking sufficient fossil fuel energy due to the Middle East war. Add into that the rising risks for 2027 fertilizer shortages due to the Iran war that we’ve been talking about for the past five months, and the table is being set for a possible significant shortfall in available corn and wheat supplies over the coming year. I don’t want to downplay the ongoing energy risks surrounding the war with Iran but look for the pendulum to shift to food supplies in the months ahead as fertilizer tightness combines with Black Sea shipping problems.

President Trump remains focused on China. Yesterday’s speech on voter fraud reflected concerns about China, but there’s not a lot new there. China meddles in our business, and we in theirs. But his recent notice that he would not signoff on extension of the U.S. Mexico Canada Agreement (USMCA) on trade is also all about China, as are many of his actions on Iran, Venezuela, Greenland, etc. As for the USMCA, we’re not going to stop trading with Canada and Mexico. That’s not going to happen. But President Trump does want to negotiate more restrictions on transshipment of Chinese products through these countries, as well as other agreements that China tries to make with these countries to circumvent U.S. interests. For example, Canada recently reached an agreement with China to sell a major mining company with significant holdings in Africa to China, adding to its edge in precious metals and critical rare earth minerals essential for manufacturing and the production of defense weapons. President Trump also just created the Marine Minerals Administration as a first step toward mining rare earth minerals from the sea floor, with the first targeted location being in federal waters off American Samoa. Food is essential, and energy is important, but rare earth minerals will determine who has access to both in the future.       

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Perspective: Morning Commentary for July 17

July 17 – Chip stocks are again under pressure amid concerns about whether AI investments will meet expectations, leading to a roughly 2% selloff in Nasdaq futures this morning. The VIX elevated to a nine-day high above 19 this morning, while the dollar index traded near 100.9. Yields on 10-year Treasuries traded near 4.53%, while yields on 2-year Treasuries trade near 4.14%. WTI crude oil pushed higher to trade near $82 per barrel, while Brent traded near $87 per barrel. The grain and oilseed markets were mostly higher again overnight as Black Sea risks increase amid rising domestic and global demand prospects.

Arlan Suderman
Arlan Suderman
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  • Dairy
  • Renewable Fuels
  • Cocoa
  • Coffee
  • Cotton
  • Sugar
  • Meats & Livestock
  • Forest Products

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