Trump’s second term set to spark grain market turmoil

Attempts to second guess what his second term will bring, and especially the knock-on effects of his pledges to impose tariffs of at least 10% on US imports, with a 60% levy on imports from China, have prompted significant grain market moves, finds a CRM Agri report.

“This has affected not just futures in corn and soybeans, the two major US crop exports, but wheat, given Trump’s ambition to end the Ukraine war, and rapeseed.

“Amid such volatility, likely being fuelled by changes in fund strategy, some immediate market trends are evident. Futures are, for instance, demonstrating concern over longer-term US export prospects,” commented the UK analysts.

As part of Rabobank’s webinar this week, The Fall Harvest Outlook, Steve Nicholson, a US-based global strategist, grains, and oilseeds, talked about the protectionist environment global grain markets are likely facing into given Trump’s historic moves in this space.

“Looking at US soybean exports to China, we see that until 2018, they were generally on an upward trajectory, much like Brazil's production. When Brazil experienced poor harvests, the US typically benefited. However, the former Trump administration's imposition of import tariffs on China prompted retaliation, which significantly hurt US soybean exports and prices.

“While there has been some recovery, it has largely depended on Brazil's production struggles. This year, soybean exports are doing okay, but they're far from strong. This is something we must monitor closely in the coming years, particularly as Trump has signaled the possibility of reintroducing tariffs. Analysts in China have warned that any US tariffs targeting China will likely lead to retaliation."

Timing is everything ​

Asked by this publication how Trump’s anticipated trade war could play out for US corn and soybean exports in the short-term, he said. “This is a complex issue. Tariffs tend to limit trade and can be inflationary. The Federal Reserve's focus on controlling inflation might lead to maintaining higher interest rates, which could strengthen the US dollar relative to other currencies. A stronger dollar generally makes US exports, including agricultural products, less competitive, which could negatively impact grain exports and prices.”

"Grain exports are likely to bear the brunt of any trade disruptions though, and much depends on how quickly and aggressively the administration implements its tariff strategy.

“For example, will tariffs be imposed immediately, or will there be a delay of six to twelve months?

“Additionally, some countries might attempt to 'front-load' trade, accelerating purchases to get ahead of potential tariffs. However, the timing and specifics of tariff implementation will be critical in shaping their overall impact," remarked Nicholson.

China is ‘better prepared’  ​

According to CRM Agri’s report, China, by far the top soybean importer, looks better prepared this time for a trade war with the US, having increased its reliance on Brazilian origin and having reportedly stockpiled ahead of the US election.

“China’s soybean stocks swelled 33% to a record 43.3Mt in the year to the end of September, the USDA says. China has also managed to cut its reliance on soymeal in feed, to 13.6% by volume last year from 17.3% in 2019, at least according to the country’s ag ministry.”  

While the US has a market share of 27% in global soybean exports, and 31% in corn, the share in wheat is 10%. So, importers have more in the way of alternative origins, should  Trump’s return to office herald the trade wars, remarked those analysts.

“This does not mean that the result has no implications for wheat. For instance, his pledge to bring an end to the Ukraine war would, if achieved, stand to support wheat exports from the Black Sea – a consideration which is one of the reasons for recent price weakness.”

The narrative before the poll was that Trump, being pro-fossil fuels, represented a threat to the biofuels industry, which swallows more than one-third of US corn output, continued the analysts.

“His return has been viewed as a threat to the strong pace of US corn exports too, given his pledge to impose tariffs of at least 10% on all the country’s imports (60% on imports from China), and the risk of retaliatory levies on US shipments that these moves would entail. Yet December-24 corn futures were, ahead of the WASDE already up by more than 2% post-election - against the headwind of a rising dollar too."

Still, that buoyancy in spot futures should not be taken as a sign of market welcome for Trump’s return, cautioned the CRM Agri team.