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Perspective: Morning Commentary for October 2

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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October 2 – The bad news is good news trade is back in full effect, with stock futures surging to point to a notably stronger open following a significantly worse than expected tranche of U.S. labor market data in this morning’s September Nonfarm Payrolls report which we’ll dive into in more depth below. The VIX has broken sharply lower in response, now hovering around 15.5, its lowest level since last Friday. The dollar is following suit as this softens Fed rate expectations, now down 0.2% on the day to trade near 101.86 at the time of writing. Treasury yields are joining in on the drop as well, with the 2-year at 4.74%, 10-year at 5.184%, and 30-year at 5.57%. Crude oil is notably lower to start the day, with nearby WTI down 3.9% to trade near $89.30 and nearby Brent down 3.1% to trade near $99.10. Meanwhile, the ags are largely mixed to start the session, with parts of the wheat complex narrowly in the green at the break while corn and soybeans hang in the red.

The U.S. economy added 29k jobs in September, sharply below the expected 90k and below even the lowest estimate of 35k, representing a major reverse in course from the downwardly revised 133k seen in August. This was originally reported at 162k, while July’s 21k was also revised down to now show a loss of 10k jobs; between July and August, downward revisions combined to show job growth 60k lower than previously reported. Part of the drag in September was a 17k drop in government payrolls, with the private sector adding 46k, though this was also notably below the average estimate of 85k and even the lowest estimate of 50k. The biggest strength was seen in the health care sector, adding 17k jobs, followed by construction (11k), and manufacturing (9k). This is a notably uglier picture for the U.S. labor market relative to the resilience seen in other recent releases, pushing the unemployment rate back up to 4.2%, back to where it sat in June. The key takeaway is that a notable weakening of the U.S. labor market removes some of the urgency for the Fed to continue hiking, giving the doves a fresh dose of hope.

E.U. leaders held a call on Friday to discuss a French proposal to release 50 million barrels of diesel held in European emergency reserves, as well as 50 million barrels of crude oil from International Energy Agency members. This follows U.S. pressure on E.U. members to begin releasing reserves in an attempt to help quell surging global fuel prices or face a potential export ban. Given Europe’s increasing reliance on American diesel and other energy products amid the ongoing disruptions to global supply, this would be extremely impactful. In today’s call, E.U. leaders reportedly discussed making any such releases from emergency reserves conditional on the U.S. committing to not impose such a ban. Reuters is reporting the 50 million barrels equating to roughly 17% of the E.U.’s emergency reserves; the U.S. has already 31.7% (131.67 million barrels) of its crude oil reserves in the Strategic Petroleum Reserve since the war began, with an additional 40 million barrels currently being offered, with bids due next Tuesday (10/6). Coupled with the news of improving crude flows from the Middle East, the prospect of a potential near-term supply boost on the distillate side where the tightness is particularly acute is helping push energy prices broadly lower this morning.

Meanwhile, the U.S. continues to ramp-up the pressure on Iran both economically and militarily. On the economic side, the U.S. announced new sanctions on Iran’s state-owned railway and affiliated operators, as well as various parties involved in the shadow banking network that have been used to process payments for Iranian oil sales, move funds outside of traditional banking channels, and facilitate sanctions evasion. This includes an explicit targeting of the Russian-backed A7 Network, founded in 2024 by Moldovan fugitive Ilan Shor, who now lives in Russia, in coordination with Promsvyazbank, a Russian state-owned bank with close ties to the country’s defense sector. It’s worth noting that the system involves parties in various other third-party countries, notably the U.A.E., Kyrgyzstan, Turkey, Indonesia, and Hong Kong, facilitating transactions for a wide range of criminal and terrorist organizations, as well as heavily sanctioned nations like Iran, Russia, and North Korea. With the U.S. currently carrying out a blockade of Iranian ports at sea, this week’s steps look to target Iran’s ability to generate export revenue via rail while also targeting their ability to finance the process. On the military side, the Wall Street Journal yesterday reported that the U.S. was sending a third aircraft carrier and up to 10,000 more troops to the Middle East, raising concern of additional escalation. UKMTO has reported four vessels being struck in or near the Strait of Hormuz this week, though shuttle operations continue. With weekend market closures being known for their surprise escalations, traders will be watching headlines closely in the days ahead.

USDA released their August Grain and Oilseed Crushings figures after yesterday’s close, officially wrapping up the 2025/26 marketing year. August soybean crush fell to 209.64 million bushels, slightly below the average analyst estimate of 210.5 million and marking the weakest month since September 2025, the first month of the marketing year. This puts cumulative 2025/26 U.S. soybean crush at 2.646 billion bushels, representing a new all-time high by 8.2% but coming in 9 million below USDA’s September WASDE estimate, meaning we will see a modest downward revision on next Friday’s October WASDE. Corn used for ethanol came in at 477.73 million bushels in August, up slightly from the month prior and marking the highest month of usage since December. This caps off the 2025/26 marketing year at 5.547 billion bushels, up 2.0% year-over-year and representing an eight-year high. Still, this finishes 3 million bushels below USDA’s September WASDE estimate, meaning there will be a modest downward revision there as well. That will be entirely overshadowed by the sizable reduction in feed and residual following the ugly September 1 corn stocks print on Wednesday’s report that will add 173 million bushels to 2026/27 beginning stocks.

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