Home 5 Ag Stories U.S. creeps closer to trade war with China

U.S. creeps closer to trade war with China

Source: Wikimedia Commons

Tensions are heightening on the United States/China trade front.

The United States on Tuesday announced plans to move forward with the proposed 25% tariff on $50 billion worth of Chinese goods. The stiff tariff will be implemented on June 15th.

Grain markets reacted emotionally to the latest news out of Washington. Zaner Group market strategist Brian Grossman says the recent news is just “talk,” but could later turn into action.

“Taking a step and putting a date, June 15th, on the tariffs definitely could bring some action. For that sense, China is still going to be shopping down in South America. So it’s still a lot of white noise. It’s going to matter if we can get this straightened out by the end of our growing season, around that September timeframe, when we want to see them start coming back,” Grossman said.

Grossman adds “grains are under pressure” and hint at a full-on trade war on the horizon.

“I think the market now is at the point where we have to assume we are going to be in a full on trade war. That could put some pressure onto the soybean market. But, we still have only x-amount of beans. A lot of it’s going to be emotion, we just have to be careful not to let ourselves get wrapped up and make a quick decision based off of emotional reactions,” Grossman said.

Grossman encourages growers not to panic. He adds grain futures have yet to hit a calendar high. However, he warns producers – most calendar highs occur in the month of June.

“If you have sales in the books and they’re at profitable levels, I think you can ride it out, if you’re at an area that you’re comfortable with,” Grossman said. “We are still trading over the $10 level. For a lot of guys, that is a profitable region to be in. It wouldn’t hurt to have some sales in the books.

Grossman reminds growers of ways to protect marketing decisions.

“The floor could fall out underneath us, and there’s not much we can do when our price goes below break even. But, we can always participate in a rally,” Grossman said. “If you want to make that sale, feel free to pick up a call option or other strategies that can keep you in the game, but limit the exposure that you have.”