Trump effect on grain market

Namık Kemal PARLAK

The latest round of trade talks between Washington and Beijing ended without a trade agreement. Before the negotiation, U.S. President Trump escalated the trade war with China, raising tariffs on $200 billion worth of Chinese goods. The decision to impose 25 percent tariffs on nearly one-third of all Chinese products is the largest trade act that Trump has taken so far. Soybean and grain futures fell as the talks faltered with China, the world’s top oilseed buyer.

The Bloomberg Grains Subindex Total Return tumbled to the lowest since 1977. The prospect of an end to the crippling tariffs that Beijing imposed on U.S. soy, corn and wheat exports was one of the few positives for American agriculture markets.

July soybean futures capped a seventh straight loss as the contract slumped to a record. Soy has been one of the hardest hit commodities by the trade war as China, the world’s top consumer. Traditionally, China has been the largest importer of U.S. soybeans, with $3.1 billion worth bought in 2018. Other agricultural products exported to China in high amounts include cotton ($924 million), hides & skins ($607 million), pork & pork products ($571 million), and coarse grains ($530 million).

No one is certain about what is next in the trade war. Beijing has a host of options to retaliate against the latest hike in U.S. tariffs on Chinese imports. If the conflict rages on, the grain market could be hit the hardest by new rounds of tariffs. The Trump administration has done projections on the effect of the additional tariffs on the economy and considers that the negative effects will be minimum and pale in comparison to those facing China, an administration official told New York Times. I am not sure about that.

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