Commodities September outlook: Time to leave Fantasyland
Markets priced a swift return to normal. A look at why physical supply constraints are telling a different story.
Duration: 9 Mins
Date: Sep 24, 2026
The pervasive story of the summer was that commodity market disruptions were temporary. Peace deals in both Iran and Ukraine would arrive. Shipping lanes would reopen, relieving supply stress and quickly rebuilding inventories. The higher prices were temporary consequences from people that did not understand game theory.
It was a comforting story, if only it were true.
The problem is that commodities operate in the physical world, where decades of history, geology, infrastructure, and underinvestment cannot always be resolved by the next headline and extrapolated away.
Markets price peace faster than the world can deliver it
The conflict between the US and Iran did not suddenly emerge in 2026. The rupture in relations dates to 1979. A confrontation now nearly half a century old.1 The kinetic conflict that began on February 28 pushed several Bloomberg commodity subindices higher by midyear:
- Energy rose 55.1% from February 27 to May 18 amid disruptions to oil and refined-product trade.2
- Agriculture rose 7.8% from February 27 to May 13 amid disruptions to fertilizer and ammonia trade.2
- Industrial metals rose 11.8% from February 27 to June 2 amid disruptions to natural gas and metals trade.2
In June, markets reacted sharply to the US-Iran memorandum of understanding and the prospect of reopening the Strait of Hormuz and restoring trade flows.3 Using the same Bloomberg commodity subindices:
- Energy fell 23.7% from May 18 to July 2.2
- Agriculture fell 13.6% from May 13 to June 29.2
- Industrial metals fell 11.9% from June 2 to June 24.2
By September, that optimism looked naive. The formal ceasefire had expired – perhaps without even starting (depending on your definition) – and tensions were escalating again:
- Energy rose 38.1% from July 2 to September 18.2
- Agriculture rose 19.3% from June 28 to September 18.2
- Industrial metals rose 7.1% from June 24 to September 18.2
That is the difference between pricing in a widely hoped for peace and producing barrels.
That is the difference between pricing in a widely hoped for peace and producing barrels.
The same short-termism periodically appears around Russia and Ukraine. The roots of that now four-year-long confrontation extend well beyond the current war, reflecting decades of strategic distrust between Russia and the West following the collapse of the Soviet Union in the 1990's and NATO's subsequent eastward expansion.4
Whatever one's interpretation of that history, it should illustrate a simple investment point: conflicts rooted in decades of strategic distrust are unlikely to disappear merely because markets would prefer them to.
The constraint list keeps getting longer
We now enter what DC politicians call the “silly season” in the run up to a midterm US election of some consequence with a surprising number of commodity disruptions in what was billed to be the year of affordability:
- US diesel prices hit $6.05 per gallon – surpassing the 2022 peak and roughly equivalent to $180 per barrel of oil.5
- The Senate Majority Leader John Thune is now openly exploring a diesel export ban – a step the US has not taken with refined petroleum products in the modern era.6
The problem for markets is that the list of physical commodity constraints is getting longer, not shorter:
- Russian attacks on Ukrainian ports are disrupting wheat shipments to Asia, Africa, and the Middle East.7
- US corn output forecasts were cut by the USDA by 213 million bushels from August and 7% from last year due to erratic rainfall and extreme heat. Corn futures hit a three-year high at over $5.00 a bushel.8
- Soybean meal hit a two year high in mid-September after US crushing production came in below estimates.9
- Europe's heat parched soil is now threatening next year’s crop cycle and not just 2026 harvests with some farmers delaying fall planting entirely.10
- UAE's Emirates Global Aluminum reported roughly 25% restoration after an Iranian strike in March with full restoration not expected until late Q4 2026.11
- Norsk Hydro's Alunorte refinery in Brazil, the world’s largest alumina refinery cut output by 50% in August due to a gas supply disruption with lost production estimated at 100,000–120,000 metric tons.12
- Australia's Tomago smelter (Rio Tinto's largest) required a $1.8 billion government bailout to stay operational due to high energy costs.13
- China's aluminum output hit a record in August up $4.7 year over year to just under 4 million tons a month to partially fill the global gap, but it risks approaching the governments annual capacity gap of 45 million tons.14
- Cocoa futures hit the highest prices of the year late in August on renewed El Niño weather disruption fears.15
- Ghana is proposing a 6% farmgate price hike for cocoa, risking increased smuggling risk with the Ivory Coast.15
- India, the world’s second largest sugar producer took the unusual step of allowing up to one million tons of duty-free raw-sugar imports after domestic prices reached a record, temporarily removing a tariff that had previously stood at 100%.16
When stocks and bonds respond to the same shock
There is one final irony. The return of the 5% US 10-year Treasury yield may itself be changing the diversification equation.
Historically, rising Treasury yields have not necessarily been bad for equities when they reflected stronger economic growth. Higher growth could support corporate earnings sufficiently to offset the higher discount rate. But a 5% Treasury yield driven instead by inflation, fiscal concerns or a rising term premium presents a very different problem: the discount rate rises without a corresponding improvement in the growth outlook.
That distinction matters today. The Wall Street Journal recently noted that since 2020, higher Treasury yields (lower bond prices) have increasingly coincided with falling stock prices – a reversal from much of the prior two decades.17
If the prices of both stocks and bonds begin responding negatively to the same inflationary shock, the traditional diversification benefit of owning both diminishes. And that is precisely the environment in which an asset class driven by physical supply, inventories and scarcity rather than corporate earnings or fixed coupons may become increasingly relevant.
Final thoughts
The lesson from the past several months is not that markets are irrational. It is that financial markets can be driven by investor sentiment in opposite directions that the physical market would imply. Eventually it is the physical market that determines price. Inventories cannot be rebuilt overnight, supply chains cannot be rerouted without cost, and decades of underinvestment cannot begin to be resolved by a single diplomatic breakthrough. As investors looked ahead to potential peace agreements, reopening trade routes, and easing inflation pressures, commodity markets remained tethered to a more stubborn reality. That distinction may matter beyond commodities alone. If inflation, scarcity, and supply constraints continue to influence both economic activity and asset prices, investors may need to rethink some of the assumptions that have guided portfolios in recent years. In an increasingly uncertain world, reality has a way of reasserting itself. The visit to Fantasyland was pleasant while it lasted. The problem is that eventually you must leave the amusement park – and the bill for the visit is coming due.
Endnotes
1"Iran.” A Guide to the United States’ History of Recognition, Diplomatic, and Consular Relations, by Country, since 1776. Office of the Historian, U.S. Department of State, September 2026. 2 Bloomberg data: Bloomberg Commodity Energy Subindex returns 2/27/26–5/18/2026; 5/18/2026–7/2/2026; 7/2/2026–9/18/2026. Bloomberg Commodity Agriculture grains subindex returns 2/27/2026–5/13/2026; 5/13/2026–6/29/2026; 6/29/2026–9/18/2026. Bloomberg commodity Industrial Metals subindex returns 2/27/2026–6/2/2026; 6/2/2026–6/24/2026; 6/24/2026–9/18/2026. 3 "Iran and US trade threats after Houthi attacks escalate regional conflict." Reuters, September 2026. 4 "Why NATO Has Become a Flash Point With Russia in Ukraine." Backgrounders. Council on Foreign Relations, September 2026. 5 Bloomberg data: WTI, Diesel wholesale price 12/31/2021–9/18/2026 normalized graph. 6 "Top Senate Republican floats a diesel export ban as prices soar. It might not work." MarketWatch, September 2026. 7 "London's marine insurers widen Black Sea high risk zone as shipping attacks surge." Reuters, September 2026. 8 "Happy New (Marketing) Year! What Lies Ahead for the 26/27 Corn Crop." National Corn Growers Association, September 2026. 9 "Soybean Meal Price Trend Analysis 2026: Market Insights, Price Drivers, Latest News, Supply Demand Analysis & Historical Prices." Procurement Resource, September 2026. 10 "Heatwave triggers potato shortage in Europe." Financial Times, September 2026. 11 "EGA’s Al Taweelah smelter restoration reaches 25% completion milestone." Emirates Global Aluminium, August 2026. 12 "Alunorte reduces alumina production on natural gas supply disruptions." Hyrdo, August 2026. 13 "Australia’s largest aluminium smelter to run on renewables by 2033 after Rio Tinto strikes $2.5bn taxpayer bailout deal." The Guardian, August 2026. 14 "China aluminium output hits record high in August with capacity cap in sight." Mining Weekly, September 2026. 15 "Cocoa Crisis." Bloomberg, September 2026. 16 "India Allows Rare Tax-Free Sugar Imports to Cool Prices (2)." Bloomberg Tax, August 2026. 17 "Why It’s So Hard to Work Out What the Bond Market Is Telling Us." The Wall Street Journal, September 2026.
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