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Perspective: Morning Commentary for September 29

By: Mike Castle, Market Intelligence - Fertilizer Analyst

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September 29 – The U.S. labor market is in the spotlight today with the August JOLTs report due out at 9:00 AM Central Time. We’re essentially back to “good news is bad news” in the equities as traders view the resilience of the labor market as a permission signal for the Fed to continue moving rates higher in order to combat lingering above-target inflation. To that end, we’ll also get an update on the Fed’s preferred inflation metric, PCE, for the month of August tomorrow morning. This likely sets the tone for volatile mid-week trade, especially with the backdrop of ongoing geopolitical headlines playing a factor, and the timing coinciding with both month-end and quarter-end.

Stock futures are pointing to an attempted turnaround Tuesday to start trade, looking to claw back some of yesterday's losses. The VIX is cooling slightly to start the day, hovering around 15.85 at the time of writing after touching a near two-week high yesterday. The dollar continues to push higher, up 0.15% on the day to trade near 101.33, holding near a two-month high on rising rate expectations. Treasury yields are quietly lower to start the day but remain notably elevated, as 2-year yields hover just above 4.92%, 10-year yields trade at 5.226%, and 30-year yields trade at 5.549%. Crude oil prices are easing this morning, with nearby WTI down 3% to trade at $90.50 and nearby Brent down 1.7% to trade at $96.16 at the time of writing. The ags are looking at a mixed start after yesterday’s sharp selloff, with corn and soybeans looking to bounce back but the wheat complex extending its decline following reports of “constructive” talks between Russian and U.S. officials as well as an improving outlook for U.S. winter wheat planting conditions ahead, which we’ll touch on in more depth below.

The U.S. and Iran continue to negotiate through mediators this week, with Trump casting doubt on the progress on social media yesterday as he denied reports that he had offered Iran sanctions relief and access to frozen funds in exchange for nuclear concessions. Still, diplomatic channels clearly remain open following the Iranian delegation’s visit to the U.S. last week, a positive sign. Iran appears to be trying to revive much of the framework the two sides agreed to in June, while the Trump administration is now demanding that some of those previously agreed U.S. concessions be tied more directly to Iranian nuclear concessions. The disagreement increasingly appears to be centered on sequencing: the June MOU focused on immediately de-escalating the fighting and restoring commercial traffic through the Strait of Hormuz, with Iran reopening the Strait as the U.S. began lifting its naval blockade and providing temporary relief for Iranian oil exports, while the larger questions surrounding nuclear restrictions, broader sanctions relief, and a permanent settlement were left to a 60-day negotiating window. Now, however, the U.S. side appears to be pushing for Iran to agree to nuclear restrictions prior to providing such concessions. To me, the negotiations increasingly look like a contest over which side can withstand another month-plus of pressure rather than a negotiation in which the remaining differences are merely technical. Iran’s IRGC-aligned hardline faction has reason to test whether political and economic pressure increases through the midterms, while the U.S. appears equally convinced that continued pressure on Iran’s economy will improve its negotiating leverage.

Meanwhile, crude oil flow from the Middle East appears to be improving, with loadings at Saudi Arabia’s now critical Red Sea port of Yanbu reportedly restarting after the attacks on their East-West pipeline earlier this month. The pipeline is reportedly now running at roughly 3.5 million barrels per day, technically around half of its stated 7 million barrel per day capacity but not significantly below the 4 – 5 million being moved prior to the attack. Flows through the Strait of Hormuz itself have seen a meaningful improvement in recent weeks as well, with crude oil volumes now several times higher than they were at the worst points of the disruption, albeit still substantially below normal pre-war levels. This may be part of the calculus behind the U.S. taking a seemingly harder stance in negotiations, though that remains an inference on my end rather than a stated rationale. At the same time, the recovery in alternative export routes creates renewed incentives for Iran-aligned forces to threaten those gains. In my opinion, the Houthis would appear to be one of the more plausible sources of renewed pressure, particularly with Saudi Red Sea crude loadings resuming and Yanbu already having been targeted repeatedly this month.

A very wet week across the Midwest kept a lid on harvest progress, with corn and soybeans both advancing 5% week-on-week to reach 18% and 17% complete, respectively. This was 2% below analysts' expectations on the corn side and 3% below on the soybean side. If it weren’t for the rapid progress seen in the Delta/Southeast, we’d probably look a bit more behind schedule, particularly on the soybean side, as this is now the slowest pace of harvest at the national level seen since the 2019 campaign. That stress continues to be reflected in the cash markets, particularly in the regions with new or expanding soy crush facilities. Compared to the previous five-year average pace, Iowa (-14%) is the furthest behind, followed by Nebraska (-12%), and Ohio (-10%). The fact that Iowa has the largest soy crush capacity of any state and is the furthest behind schedule with harvest is surely adding to this stress, with the evidence again coming from the cash markets on both soybeans and meal. On the conditions side, U.S. corn and soybean ratings held steady at 57% and 58% good/excellent, respectively, matching analyst expectations.

U.S. winter wheat planting remains off to its slowest start on record, advancing 10% week-on-week to now sit at 27% complete nationally. The biggest delays continue to center on hard red winter wheat country across the Plains, with Nebraska (-22%), Oklahoma (-18%), and Texas (-9%) the furthest behind their average paces nationally, with Colorado (-8%), Kansas (-6%), and South Dakota (-4%) not far behind. The initial delays were primarily due to the lack of soil moisture seen across the region, but that’s changing rapidly now as widespread rain arrives. Last week was the wettest for the comparable dates since 2017 across the Central and Southern Plains, which should provide the conditions to get rolling when Mother Nature allows. Forecasts keep the region wet this week, with more rains moving through today, before clearing up over the weekend and into next week. If these forecasts verify, we should see considerable progress to play catch-up, especially with lofty fall crop insurance prices providing incentive.

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