Commodities Report: Tough tariff talks
There has been a lot of action in the food commodity markets in recent weeks. Most notably the news that China has raised tariffs on U.S. pork and has threatened to broaden those tariffs to various other products including beef, chicken, durum wheat and soybeans. China was the destination for about 20 percent of our agricultural exports last year, with the largest being soybeans, accounting for 75 percent of that by volume. China, by far, is the largest soybean importer and can account for around a quarter of our entire crop. Grain futures sold off sharply on the news but have since rebounded some on optimism that a trade deal could be reached. After all, this is all in response to the Trump Administration instituting new tariffs on Chinese products. A couple of factors make a deal between the two countries likely before the end of this coming summer. First, we are just a little more than half a year away from mid-term elections and the Trump administration certainly has interest in not having this drag on, impacting a large part of the Republican base in the Midwest. Further, China usually starts sourcing more soybeans from Brazil during this time of the year with their new crop and doesn’t really return to the U.S. in a big way until late summer. China is almost certainly going to need our soybeans with the new harvest later this year and would rather not tax their food source. Now if we are wrong and a deal is not achieved, this could be especially supportive of corn futures back home as Brazil is likely to increase soybean plantings substantially next year. Speaking of plantings, or the lack thereof, cold and wet weather has delayed planting in the U.S. during the spring. Given that domestic corn acreage is currently projected by the USDA at a three-year low, the margin of error with the pending corn crop is much smaller than in soybeans and wheat. This could support grain futures, especially corn, in the near term. And if we have a short crop this year, it could bring support to proteins and dairy as well.
David Maloni is commodity consultant for American Restaurant Association Inc., a food commodity research, forecasting, consulting, and contract risk management organization founded in 1996 specifically advising the US restaurant and hotel industry and supply chain.