The advent of the age of geopolitics based on whim and emotion has pressured agricultural commodities in ways I haven’t seen the like of in my career.
Yet, commodity prices haven’t moved nearly as much as I expected, given U.S. President Donald Trump’s bombastic threats, bullying and policy creation on the fly, often aimed at agricultural trade.
Agriculture markets look for a reason to move — up or down. News, rumours, and Brazilian rain can result in market gyrations, sometimes to the point of eye rolling. So, I’m surprised that the threat posed by industry-rearranging tariffs the U.S. has hit many of its trading partners with, and retaliatory tariffs on American farm products have not moved the market more.
However, mid-June might have been the tipping point, with a days-long run down in the markets, led by soybeans. True, traders seemed to have been convinced that the corn crop was on its way to a healthy harvest, but there was more to it. Corn supplies are tight and there’s solid demand for soybeans.
More announcements about tariffs from China were likely the cause, as some institutional investors realized that there might be something longer than shorter term to this trade war.
I’m glad that markets don’t move on every aggressive Tweet from the president, but large and specific $200 billion tariff threats do create jitters.
The North American Free Trade Agreement and other trade deals have rearranged our systems of commerce. Throwing spears into the gears of a complex system will have unpredictable effects.
From what I read from traders and analysts from the U.S., they haven’t had a lot of concern that the tit-for-tat tariffs will ever actually have much of an effect. After enough Trump threats and bullying, it’s a bit like the boy who cried wolf. There’s not a lot of belief he’ll actually do much of anything he threatens.
Maybe that works for the U.S. administration, but I’d much prefer reasonable negotiations to threats that could mess with the lives of millions.
Ed White, my Glacier FarmMedia colleague at the Western Producer, recently returned from the World Pork Expo where he expressed surprise at how little concern some in the hog sector had that the tariffs would have much effect.
Mexicans still want to eat pork and in the short term they will have to keep importing American pork, 25 per cent tariff or not, said one of the leading pork market analysts in the U.S.
There’s some truth to the idea that people have to eat and that there’s little chance that Mexico, for example, will put a tariff on U.S. corn which it relies on to feed its people. But there’s also truth to the point that markets will find a way to compensate when something is too expensive.
It’s all about how long the trade battle wages on. Short-term brawling over trade is one thing and Americans seem to be betting that the powerful right hook of the American economy will mean capitulation from smaller countries. But I wouldn’t bet on it.
It’s one thing to bully people in business. Global politics are something else. Leaders of every country have their own politics to worry about and in most cases, that will trump Trump’s tactics.
People can be nationalistic and collectively, nations don’t usually respond well to bullying. There’s also the fact that countries have militaries, and I sure hope that factor never comes into play in the current situation.
Trade wars tend to drag on a long time, even if that’s not the first thought of those who start them with short-term goals. Look at World Trade Organization challenges. Look at how long the U.S. was able to hold onto its country-of-origin labelling program.
What will it mean for the markets going forward? Markets always find an equilibrium, a level where current events and fundamentals will create a value for a product. There may be some shifts in agriculture markets until they find those new levels. That could be good or bad for farmers, but there’s little doubt that in between, there will be some volatility to manage as we move closer to this year’s harvest.