This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at [email protected] or 843-540-4540.

A well used trading adage is escalator up and elevator down. In around 8 trading sessions, the market erased the gains it took more than 3 months to gain. We really did not need a reminder about what a market can do when it goes into panic mode, but that is what we got. Part of the selloff is due to worries about tariff targeted countries retaliating against US ag commodities, but a bigger part of the selloff is due to just panic and money leaving the market. The funds had built a fairly large long position in corn and had started building one in beans as well. They all ran for the door at the same time this week. Ag markets were not the only markets who got absolutely whalloped this week, to use a really technical term. The list of asset classes that took a beating this week is very long as massive amounts of capital just wanted safety. Beans held on a little better than corn (relatively) because the funds did not have as large of a position in beans. That fact helps lend credence that this selloff is not a fundamental shift, it is (or hopefully was) just a panic selloff. 

Everyone is having a hard time deciding what is a real threat and what is just noise. Tariffs are threatened. Are they going to actually go into effect or is it just a tactic to get some concessions? In early February they were threatened and the market dipped but then there was a 30 day pause and so the market recovered all the losses from that dip. As the 30 day deadline approached on March 4th, the market did not really react too much until we got much closer assuming the same thing would happen again. As we approached the deadline, it started to look like they were actually going to be enacted. Then the threatened tariffs were enacted and many asset classes sold off. Canada and China announced pretty significant responses and Mexico said they would announce their response this weekend. All have singled out agricultural products specifically. China’s response included adding tariffs on a variety of products including corn, cotton, wheat, chicken, pork, beef, soybeans and other ag products. Canada’s list of products includes pork, beef, dairy, fruit, vegetables and ethanol. Canada has been the top foreign buyer of US ethanol for five years now. 

So the tariffs went into effect early this week and the target countries started announcing their responses. Then Wednesday there were some rumors the automotive industry would get some tariff relief. On Thursday it was announced, and then an executive order signed, that provided temporary exemptions from the tariffs for any products that comply with the USMCA trade deal that was negotiated in Trump’s first term. The figures estimated are 50% of Mexican imports and 38% of Canadian imports comply with USMCA. The grain markets are finding buyers at these levels because the fund panic selling has subsided. The grain market is finding buyers at these lower prices because they see value at these levels and still need the products. However, the temporary exemption for products from the tariffs will expire April 4th when the administration is planning on putting reciprocal tariffs on all countries so get ready for another round soon. 

Market panics should have less of an effect on the grain markets going forward now that the funds have pulled money out. If there is a shift in trading due to a full blown trade war, that may change the fundamentals which could change price ranges but the bulk of the panic selling in the grains should be behind us.