Grains end mixed Tuesday, with livestock mostly higher.
Jim McCormick, AgMarket.Net, says corn and soybeans slid on possible tariffs being placed on Mexico, Canada and China.
“I think there was definately knee jerk to the down side as a result of it. Remember six years ago when we had the last trade war grain prices kind of got hit hard. So I think the reaction of the market was hey last time what happened was bearish so I’m going to sell some of my length,” he says.
The market held up better than some had expected and McCormick says it was because there are ideas that exporters have been put on notice and there will be additional front loading and buying of U.S. ag products ahead of Trump taking office.
“I think that’s what you could see, there could be a race to do it,” he says.
Mexico’s president quickly signal possible retaliation and McCormick says that may indicate there will not be a quick resolution and it could even escalate into a trade war.
“I think it could be drug out for multiple months like it was last time and so in the long run it is going to be bearish to prices. When things get more expensive the buyers of the world try to find a cheaper source,” he adds.
He is especially concerned about soybeans due to the possibility of China switching to mostly South American sourcing.
“When Trump takes office on January 20 you will be in prime harvest season in Brazil with a big crop and tariffs will make our beans less competitive,” he says.
A trade war could also be negative for the broader economy and consumers because a 25% tariff on Canadian crude oil will have a trickle down effect on all goods and the automobile industry is also dependent on Mexico for parts.
He says this could drive up inflation which is bearish for all businesses.
Wheat ended higher on short covering by funds going into the holiday and the market was also adding a little Black Sea war premium back in.
Positioning ahead of end of the month and first notice day was also evident.
Cattle ended mostly higher with new highs for the move with import restrictions on Mexican feeder cattle due to New World Screwworm.
Lean hogs shook off the tariff news despite Mexico being the top customer for U.S. pork.
Futures extended gains into new contract highs.
