This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
The USDA report came and went on Monday without the fireworks we were expecting. The fireworks came after what Trump labeled liberation day. After several tariff deadlines came and went with the can being kicked down the road, many were not expecting any major changes on April 2nd. In his Rose Garden speech, Trump announced 10% tariffs to almost all countries and tariff levels even higher for countries that have barriers to US goods. The 10% is called the baseline and will go into effect on April 5th and the reciprocal tariffs, the ones over 10% will take effect on April 9th. The targeted countries have said they will respond in kind but as of today we have not seen that response yet. Leading up to the April 2nd announcement, some from within the administration had been telegraphing that the reciprocal tariffs would be the starting point for negotiations with other countries to lower their tariff and other barriers to trade with the US. The equity and bond markets seem shocked by the levels and were in full meltdown mode on Thursday. The equity and bond markets are reading the announcement as protectionism which will cause inflation for a stretched US consumer and cause a recession rather than just the starting point to a negotiation to make world trade more fair. We thought the stock and bond markets had some tariff risks priced in but after Thursday’s trade it is clear that they did not have enough risk priced in.
We are in the very early stages and do not have any idea how this is going to play out so trying to project how this will affect the grain and ag markets is a waste of time but here is some of what we know today: no new tariffs were announced for Canada or Mexico and anything that falls under the USMCA (the free trade agreement negotiated during Trump’s first term to replace NAFTA) will still be exempt. Mexico has been by far the biggest buyer of our corn so that is very welcome news. The grain and oilseed markets were initially sharply lower on the overnight open but corn and wheat were able to battle back and trade higher on Thursday. Beans were also able to trade off the lows. Cotton was not able to get off the lows due to a combination of recession fears and worries about the Chinese response. The grains and oilseeds were already at very depressed levels and the balance sheets are tight enough to help find support at these levels. Spec funds had already greatly reduced their positions in the grain markets so the panic has not spilled over into grain as much as it could have. Once the panic calms down and cooler heads prevail, grains will get back to trading weather. If we see increased inflation risk, that will also bring fund money back into the grain markets since they are relatively low priced currently.
We still have a lot of planting and growing season ahead. April is the most important month for yield for the second crop corn in Brazil and May will kick off planting in the Midwest. There are elevated weather risks for the US as we are going into the growing season without subsoil moisture reserves.