The Weekender

U.S. markets were closed Monday for Labor Day—a holiday celebrating American workers. Ironically, the rest of the world spent the day making damn sure we’d have plenty of work-related chaos waiting when markets reopened Tuesday.

U.S.-Iran fighting escalated, Hormuz traffic remained a trickle at best, crude traded above $100 for the first time in four months, diesel made new highs and problems in the Black Sea only got worse.

China continued chipping away at its 25 MMT purchase commitment, while news that the two countries are discussing reciprocal tariff cuts added another wrinkle ahead of the Trump-Xi meeting later this month.

Then USDA got its turn Friday. The cut to corn yield was relatively friendly, beans did not get the production cut the market wanted and, despite a world wheat picture that currently resembles a floating dumpster fire, USDA increased global production and kicked the Black Sea problem down the road another month.

After weeks of strength and a whole lot of speculative length, “not bullish enough” was enough to send markets tumbling into the weekend.

$100 crude, $5 diesel and a 10-year within spitting distance of 5%. That escalated quickly.

Crude hit triple digits last week. Brent finished above $104 and WTI held $100 even after a sharp Friday retreat, leaving both up more than 9% on the week.

Hormuz is no longer the only maritime choke point in trouble. The Houthis took effective control of the Bab al-Mandeb after seizing Perim Island and Dhubab, tightening their grip on the southern entrance to the Red Sea. The bad part: Saudi Arabia has been moving crude west to bypass Hormuz, and those attacks forced it to shut the critical East-West pipeline as a result.

Shocker: diesel made new highs. Again. NY Harbor ULSD traded above $5/gallon during the back half of the week as distillates remain in an international squeeze. Futures are now roughly $1/gallon higher than late July and more than $2.50 above year-ago levels.

For the U.S. farmer, $5 diesel couldn’t come at a worse time. Fall is when farm fuel use peaks by a mile, and retail diesel is on track to push above $6/gallon nationally in the next EIA update. Off-road diesel avoids highway taxes—generally knocking 75¢–$1.00/gallon off retail—but farm fuel still moves right along with futures.

Plus, I doubt much of the Farm Belt had a lot of fuel locked in ahead of this move. Diesel had already been ‘expensive’ for months, which likely left plenty of people waiting for a break that never came.

And this is why inflation won’t die. Headline CPI was 3.4% in August, while core inflation—excluding food and energy—was 2.4%. Energy prices were already up 16.3% year over year, led by gasoline at +27.4%… and that was before this week’s move to $100 crude and $5 diesel works its way through the economy.

Higher diesel means higher costs for everything from the farm to manufacturing and transportation. Those costs eventually show up somewhere, so even if crude backs off from $100, this latest move has already added another inflation headache for the Fed.

Energy stocks certainly aren’t trading like this is temporary. The S&P 500 Energy sector has made more than 30 record highs this year and is up 44% YTD, with the index spending the week knocking on 1,000.

The IEA is already seeing demand destruction, but supply is falling faster. It now expects global oil demand to fall 2.5 million bpd in 2026 as high prices ration demand, but global supply is projected to fall an even larger 5.7 million bpd. Global inventories saw a record 3.1 million bpd drawdown in August, and the IEA does not expect normal Gulf supplies to fully recover until 2027.

Translation: $100 crude is already curtailing demand... it just hasn’t been enough to offset the continued loss in supply.

Bonds aren’t exactly loving it either. The 10-year Treasury yield finished the week at 4.97%, up 20 basis points and at its highest level in three years. With energy inflation accelerating again, long-term rates are moving the wrong direction for anyone waiting on cheaper money—and markets are now pricing an 85% chance of a 25-basis-point Fed hike at this next week’s meeting.

Record production. Record demand.

USDA September yield = wrong direction. The market was looking for a cut, but USDA raised bean yield 0.1 bpa to 52.8, added 100k harvested acres and pushed production to a record 4.535 billion bushels.

State changes were all over the place:

Objective yield data isn’t helping the bulls. USDA found record September pod counts across the entire eastern Corn Belt, plus Iowa and Minnesota, and those counts were notably higher than what ProFarmer found in August.

From a new high to a faceplant. November beans traded to a new contract high near $13.35 before a 40-cent nosedive to settle below $13 to end the week. Step back a little and the move gets really wild: new crop beans have still rallied $2 in three months all while USDA is projecting a record crop.

Demand continues to do the heavy lifting. USDA raised 2026/27 exports 25 mbu to 1.685 billion, pulling carryout down 10 mbu to 310 million despite the record crop. That leaves just 25.7 days of supply on hand, while USDA raised the projected farm price to a three-year high of $12.00/bu, up from $10.50 in 2025/26. Total U.S. commitments are already nearing 19 MMT—double this point last year—with 9 MMT officially in China’s name. Flashes during the short week added nearly another 1 MMT on top of that.