Insight Focus
Extreme heat is ravaging crops across Europe. But this is not the only supportive factor for commodities. Both the conflict in the Persian Gulf and Russia’s war on Ukraine are creating bullish headlines for grains, oilseeds and energy this month. Meanwhile, diplomatic relations are also adding uncertainty to global markets as new US tariffs come into force.
Middle East Ceasefire Fails Again
July has been fraught with tensions between the US and Israel. Despite a ceasefire and diplomatic talks, missile attacks resumed. At the beginning of July, reports emerged that Iranian forces fired missiles at commercial vessels in the Strait of Hormuz and a tanker was struck near Oman, causing the price of oil to spike from just over USD 70/bbl to over USD 100/bbl.
This month has highlighted the fragile nature of the situation in the Persian Gulf. Disagreements persist between both parties about Iran’s nuclear program, sanctions and implementation of the June ceasefire agreement. The June agreement was largely seen as a framework to prevent escalation rather than a full peace treaty, so the situation remains extremely delicate. This is, of course, bullish for the entire commodity complex.
Trump Imposes New Tariffs
This month saw US President Trump ramp up pressure by imposing a raft of new tariffs – despite the previous levies having been struck down by the Supreme Court.
The Office of the US Trade Representative first imposed a 25% tariff rate on Brazil following a year-long investigation into “unreasonable and discriminatory” trade practices.
The announcement specifically named ethanol as one of the points of contention for the US and will be subject to the tariffs, which came into effect on July 22.
But the tariffs didn’t end there. Broad, sweeping tariffs were announced by the US president on July 23, applying to dozens of countries. There are two tariff rates (10% and 12.5%) and these will replace the rates that expired on the same day.
The US claimed the tariffs are designed to target trade partners who have not adequately tackled forced labour issues. However, critics of the move speculate that the move is simply designed to replace expiring rates.
The countries affected can be found on the map below.
Although diplomatic relations between the US and most major trade partners are likely to be frosty, there are signs of thawing in the US-China relationship. There is now evidence that the Chinese government is buying US soybeans, despite having to pay a premium over Brazil-origin soy.
According to USDA data, Chinese buyers had purchased about 6.3 million tonnes of US soybeans by July 23 – a substantial increase on the same period last year when no sales were made.
Black Sea Wheat Exports Disrupted
The Middle East has not been the only conflict zone to make the news in the past month as the Russia-Ukraine conflict comes back into focus. There have been increasing reports of attacks on port infrastructure, shipping routes and logistics assets in the Black Sea and Azov Sea, crippling grains exports for both Ukraine and Russia.
There are reports that both are resorting to overland routes to export grain, with Ukraine using rail freight to transport cargoes to the port of Constanta in Romania, while Russia tries to bypass the Azov Sea by using rail transport to the port of Novorossiysk.
Russia remains the world’s largest wheat exporter, so any disruption immediately affects global pricing and freight markets. Ukraine has also remained remarkably steadfast in maintaining wheat exports despite challenging conditions across its territory over the past four years.
This bullish for wheat prices globally, and demand is shifting to alternative origins including France, Germany, Romania, Australia and Argentina due to increased vessel insurance costs and freight premiums for Black Sea cargoes.
At the same time as exports suffer, Russian wheat exports are projected to fall sharply this month, with logistical restrictions and weaker buying from key importers limiting shipments. Wheat acreage in Russia has fallen to the lowest level in more than a decade, with farmers increasingly shifting land into oilseeds, according to a report by S&P Global. Weather delays, fuel constraints and reduced farm investment are also contributing to concerns over future grain availability.
While 2026 production is still expected to be large, forecasts point to lower output than previous years.
Source: USDA
Europe’s Heatwave Damages Crop Prospects
It is not just Russia that is feeling the heat. Severe heat across France and other European growing regions became one of the biggest agricultural stories of July. Temperatures above 38°C damaged corn during critical development stages, prompting lower production forecasts. USDA reduced EU corn production estimates, while private forecasters cut them further.
France, the EU’s largest grain producer, is facing some of the weakest corn conditions in more than a decade. Corn condition is 38% in good or excellent condition at the end of July, significantly behind the 69% recorded last year. The next WASDE release – due on August 12 – may project a drop in production or yields as a result.
And in the EU, the dairy supply chain is also feeling pressure from the prolonged heat. Heat stress among dairy herds is reducing milk yields and disrupting seasonal production patterns. AHDB estimates that heatwaves have already reduced UK milk production by approximately 18.5 million litres, which would shift the market into undersupply. EU prices have not yet reacted strongly.
Source: European Commission
