Analysis Grains
Trump surprises grain market with tariff against Canada
There is much to say about president-elect Donald Trump, but it is certainly not boring. Now he managed to surprise the market with import duties. Exporters in Canada and Mexico must pay a duty of 25%, as Trump announced via his own social media channel Truth. And for Chinese exporters, he announced an additional duty of 10%. Soybean oil reacted most strongly to the news. This could potentially become competitive as used cooking oil and rapeseed may become too expensive for blending in biodiesel.
The December contract for wheat on the Matif closed €2 higher at €216.25 per ton yesterday. On the CBoT, wheat closed 0.7% higher at $5.39½ per bushel. Corn took a step back and closed 1.1% lower at $4.20 per bushel. Soy mostly moved sideways, lost 0.2%, and ended at $9.83½ per bushel.
After China, Trump now has Mexico and Canada in his sights. "On January 20, as one of my first presidential decisions, I will sign all necessary documents to impose a 25% tariff on ALL products entering the United States from Mexico and Canada, along with the ridiculous open borders that come with it," Trump wrote on his social media platform Truth. This tariff will remain in effect until no more drugs (specifically fentanyl) and illegal immigrants enter the US.
Undermining free trade agreement
Especially the tough stance towards Canada comes as a surprise to many analysts. There have been trade tensions between Canada and the US before. The last time threats were made about trade barriers was during the negotiations that ultimately led to the U.S.-Mexico-Canada Agreement (USMCA). This is the successor to the NAFTA agreement that Trump ratified in his previous term in 2020. The US is an important market for both Canada and Mexico. 83% of Mexico's exports go to the US, and the US accounts for 75% of Canada's exports.
In another message, Trump writes about working on 'an additional tariff of 10%, on top of all additional tariffs' for imports from China. It is not entirely clear whether this is on top of the 60% import duty that Trump had previously mentioned.
Soybean oil saw an increase in the last trading session due to the statements. Traders and speculators expect more soybean oil from the US to be used for biodiesel production. With Trump's plans, used cooking oil from China and rapeseed oil from Canada would become more expensive for use in fuel. The reason soybean prices are not rising is because a good demand for soybean oil could lead to overproduction of soybean meal, putting pressure on soy processors' returns.
Low wheat stocks at Russian farmers
Wheat received support in the last trading session due to news from Russia. According to SovEcon, the amount of wheat in storage at farmers is 20% lower compared to last year. In total, there are 21.8 million tons of wheat in storage at farmers this season according to the market agency. In southern Russia - where most wheat for export comes from - stocks are 26% smaller than last year, marking the smallest amount of wheat in four years. Analysts expect the high export pace of Russian exporters to slow down in the coming period.
According to analysts, high inflation (well above 20%) in Russia also plays a role in the small wheat stocks at Russian farmers. Some analysts argue that there is more money to be made by keeping money in the bank than speculating on a grain price increase. And perhaps more importantly, borrowing money for inputs for the upcoming harvest costs Russian farmers a fortune.
