Trump, tariffs, and market turmoil: Grain market daily

• UK feed wheat futures (May-25) closed at £172.50/t yesterday, down £0.30/t from Tuesday’s close. The Nov-25 contract settled at £188.25/t, falling £1.80/t over the same period.
• Domestic wheat futures followed Paris milling wheat futures (May-25), which dropped 2.2% yesterday from a two-week high of €224.75 on Tuesday, driven by a strengthening Euro against the US dollar amid the escalating US-China trade war. This made European exports less competitive. Meanwhile, Chicago wheat futures (May-25) rose by 0.4% after a 90-day suspension of tariff increases in many countries announced last week (more details below).
• Paris rapeseed futures (May-25) lost €9.25/t in yesterday’s session, closing at €507.75/t. New crop futures (Nov-25) fell €9.00/t, settling at €469.25/t.
• European rapeseed prices diverged from Chicago soyabean futures (May-25), which gained 2% on improved market sentiment following the news of the tariff pause.

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As the raft of tariffs announced by Trump last week come into force, Sarah Baker from our Economics team examines how this is possible in this era of global trade, and how the UK may be adversely affected, despite it having one of the lowest tariff rates applied. Is this the end of globalization?

The rules of international trade appear to have been swept aside, or at least ignored, in this opening salvo from the US. The World Trade Organization (WTO), of which the US is a member along with 165 other countries covering 98% of world trade, exists to lower barriers to trade for the economic benefit of all members. 

WTO agreements are negotiated and signed by a large majority of the world’s trading economies and ratified in their parliaments. These agreements form the legal foundation for global trade.

So, what happens next? China has already filed a dispute with the WTO appellate committee. However, due to the US having previously blocked the appointment of new judges, the committee is currently paralyzed and unable to process any disputes, potentially allowing a rise in protectionism. Read the full article for more on how this affects UK beef and pork.

Effect on cereals and oilseeds prices

Price volatility of cereals and oilseeds has increased since the announcement of the tariffs, due to uncertainties around global demand, particularly from China, the world’s biggest buyer.

Oilseeds have taken the biggest hit, largely because a bigger share of global production is exported, and China is the top buyer of soyabeans. On average over the past five years, around 44% of soyabean production has been traded globally, compared with 16% for maize and 27% for wheat.

Since the tariffs came into effect on 2 April, futures markets have reacted, with Chicago soyabean futures (May-25) dropping by 5%, while Paris rapeseed futures fell by 2% by 7 April.

Summary

Yesterday, US President Donald Trump announced a temporary suspension of tariff increases for most countries, while stepping up pressure on China. This has pushed Chicago futures for soyabeans and wheat sharply higher.

The ongoing effects of this decision will become clearer over the next week. However, since US prices often mirror global trends, we can expect UK cereal and oilseed prices to be supported in the short term.

The USDA's April WASDE report due out today is a key watchpoint as it could influence prices.

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