Futures File

April 6, 2018

Trade War Looms, Battle Lines Harden

The ongoing trade dispute with China intensified as President Trump and China repeatedly ratcheted threats higher.

On Tuesday, President Trump announced another $50 billion in tariffs against Chinese products, which the Chinese matched that night with $50 billion in tariffs against U.S. products, including automobiles, airplanes, whiskey, and a slew of agricultural products including beef, pork, corn, sorghum, cotton, and soybeans.

Hardest-hit was the hog market, which descended to a 16-month low on Wednesday morning after the news broke. China is a major buyer of U.S. pork, and the 25% tariff on pork would slice into sales of U.S. meat, knocking April hog futures near 50 cents per pound.

Prices rebounded moderately, but the week’s decline is adding onto producers’ woes, as hog prices have been in a freefall all year. Devastating for hog farmers, this drop is a good thing for consumers who can hope for cheaper grilling this summer.

On Thursday night, President Trump called for another $100 billion in tariffs, which prompted the Chinese to vow to “fight back at any cost,” a sign that the trade disputes will continue to hang over markets, unless either party balks in this high-stakes game of chicken.

 

Soybeans Escape Unscathed

Approximately one-third of U.S. soybeans are exported to China, which makes the market especially susceptible to trade disputes. When China initially announced a 25% tariff on U.S. beans, the market collapsed by over 50 cents per bushel, a loss of almost 5% in value overnight.

However, the market stabilized in the aftermath as traders reassessed the complexities of the situation. China is the world’s largest buyer of soybeans, and it cannot meet its demand without buying U.S. beans.

Furthermore, if China shifts a significant portion of its demand to Brazil and Argentina, two other major exporters, those countries’ usual customers will have to buy U.S. beans. In the end, the tariff on soybeans may hurt Chinese buyers more than it hurts American farmers.

On these hopes, soybeans finished the week down just 10 cents per bushel at $10.34 on Friday afternoon.

Other markets, like cotton and corn, experienced short-term declines that were ultimately neutralized by the weekend, keeping growers optimistic about this year’s crop prices.

For over 18 years, Walt taught his method of trading at Purdue University. His comments on the markets have been featured in USA Today and other national outlets.

Walt's weekly commentary has been published for over 25 years. Futures File, written on Fridays for Saturday publication, provides a brief summary of commodity futures market highlights for the week.