Grain and livestock futures are sharply lower early Friday along with the plunge in the equity markets.
Scott Varilek, Kooima Kooima Varilek, says the panic selling continues as China has hit back with a 34% retaliatory tariff on all U.S. goods and other trading partners are looking at counter measures.
The equity market plunged in response and that is also creating some spillover into the ag sector, especially the cattle market.
“This feels a lot like the COVID market response and that is still somewhat fresh on people’s minds,” he explains.
The commodities hit hardest by the China levies are soybeans and pork as China is a leading customer for both, while they were not buying U.S. corn and wheat prior to the announcement of tariffs.
However, Varilek points out China is likely done buying U.S. beans anyway as they seasonally are buying from South America right now as their harvest progresses and supplies become readily available.
There are fears however, of cancellations of the soybean business China already has on the books.
The cattle market, according to Varilek, is not trading tariff fears as much as the impact of the recession talk on demand and the plunging stock market.
He says Mexico and Canada are exempt from the tariffs under USMCA and so the 10% tariff on Australian beef imports is actually positive for the cattle market.
Cash cattle trade so far has been holding together in the country with some $213 paid in the North as well as scattered sales of $335 to $345 dressed.
In the South there has been some $208-$210 business.
And cash feeders at Valentine Livestock in Valentine, Nebraska have not cooled off at all he says.
The cattle futures could correct quite a bit and not do any technical damage to change the uptrend.
Varilek says June live cattle could see a 50% retracement of the last leg up with support at $196.00 before doing chart damage.
How long will it take to work through this tariff news?
Varilek says it may take a while due to the possibility of more countries retaliating.
So, producers that have hedges in place need to stay the course.
