“Welcome to the Thunderdome” I thought to myself as I awoke Wednesday morning at 2:45 am to the news Former President Trump was set to become President Elect Trump. I will not lie, I was a little shell shocked, I had seen the polls but was not necessarily expecting this result. Though I had spent last week pouring over what a new Trump administration may mean for markets, concluding it wasn’t likely as bad for price as many wanted to claim; I was not looking forward to the return of volatility and the threat of late Friday afternoon headlines destroying the markets when they reopened on Sunday night.
If I wanted to be dramatic, I would say I have not fully recovered from the first trade war. Uncertainty and price swings are great for traders and gives folks who write newsletters something to talk about, but when my day job and what pays the bills consists of producers relying on me to help them navigate an already uncertain market, it can be exhausting trying to stay on top of every single development.
To be completely honest, dramatic, or not, my first reaction was to spin out a little, thinking of dire price outlooks and what it would mean. I may have even uttered something about Christmas being ruined in the thick of it…but eventually the calmer side of me began to grow louder. As mentioned, I had spent a lot of time last weekend digging into what each candidate could mean for trade relations going forward, with the conclusion that neither would be great for Chinese relations and that it was somewhat unclear whether either would be great for biofuels. A Trump win, I had said, was not necessarily as convincingly bearish as many wanted to believe and I would venture this past week’s price action post-election would agree. While it has only been a handful of days since President Trump convincingly took back the White House, there have been a slew of developments potentially helping define the path this administration takes as we move ahead. This week, I want to look at some of those developments and what seems to be transpiring in the early days of Trump’s return, with my focus of course on the people and policies that will define the administration’s approach to economics and trade.
What People Are Saying
While it is easy to get caught up in the hysteria that comes with uncertainty, I believe focusing on what is known and what experts or those connected directly to the situation have to say is a better approach, especially when trying to remain unbiased.
Falling into a cycle of creating imaginary situations that tend to grow more exaggerated the more often they are repeated, like that Chinese bean demand for US beans will fall to zero or that biofuels will be done away with, are disingenuous at best from a simple economic standpoint.
While yes, the first Trump administration and even a good share of the most recent campaign was chaotic, newly reelected Trump seems to be far more measured, making different decisions and surrounding himself with folks—some from the first round but many not—who are considered some of the best and brightest in their fields, with track records of success.
His Chief of Staff pick alone, the first woman to ever hold the position, gives me great hope we will have far less chaos this go around than before. People from both sides of the aisle talk highly of Susie Wiles, saying she brings with her a quiet power and control that will shape how this administration approaches many of the tasks it will face.
So, What Now?
So now we wait, we watch, and we do our best not to get caught up in rumors or partial untruths spoken to the media by unnamed sources.
Friday, rumors that well-known protectionist Robert Lighthizer would return as the head of trade for Trump took the wind out of the grain markets supportive post-USDA market action. The report of Lighthizer’s return has since been refuted by the Trump transition team, with insiders saying Lighthizer’s role may be more on the commerce side this go around. Former Treasury Secretary Steven Mnuchin has said in recent days that he will not return to the administration but has been adamant Trump needs to bring China back to the table when it comes to following the Phase One trade agreement.
Who will take over as the Secretary of Agriculture will likely have a lot to say about how we approach trade with China and what happens with biofuels. There have been a handful of names floated, with reports that Thomas Massie had not only been chosen but had accepted the role quickly dispelled Thursday. While I have no say in the matter, my hope would be the choice would mirror someone like Kip Tom from Indiana. A farmer and former Ambassador to the UN Agencies for Food and Agriculture, Tom would bring with him a great understanding of how important a calm and consistent message surrounding trade is to our partners when it comes to not only in growing business but also stabilizing and supporting price.
What About the Trade War?
I feel like folks, myself included to a certain extent, may have made some assumptions about Trump’s approach to trade this go around that may not necessarily be accurate. For many, news that Biden did not rollback the Trump era tariffs came as a surprise, with a few shocked even that the Biden administration took a more protectionist approach than Trump when it came to Chinese electric vehicles and chip technology. The fact is, our trade war with China never ended, with part of the reason Biden never came after them for not following through on their Phase One promises being that his administration was not going to roll back anything promised by the prior administration.
Some believe Trump will use the rollback of Biden’s tariffs and measures as a way to facilitate negotiations, perhaps helping to sweeten the pot to a certain extent. I have also heard from folks I would consider to be relatively smart and well-connected that a more pointed approach to tariffs would be in the mix this go around, targeting companies and individuals instead of entire industries.
Are Biofuels on the Chopping Block?
The projected demise of biofuels under Trump appears as though it may have been exaggerated as well, as RINs, the credits tied to biofuel production, have rallied to multi-month highs post-election. The push behind the rally is a little unclear but is tied somewhat to thoughts we could see the new administration limit which feedstocks qualify for tax credits. The influx of imported feedstocks like used cooking oil has pressured soybean oil demand and subsequently prices over the last couple of years, with the spike in imported feedstocks an apparent unintended consequence of policy.
News that Carl Icahn and a handful of other biofuel proponents will not be returning to the administration was seen as somewhat supportive as well.
In addition, the sense of urgency felt over the Biden administrations’ lack of clarity on 45z tax credits could be removed in the coming weeks as lawmakers have added an extension to the biofuel blender credit for at least the next year to a bill packed with other tax credits that need to be passed per Senator Chuck Grassley.
While only time will tell what the future looks like for biofuels, it appears as though the dismantling of the industry that was once feared will be tabled by the administration while they tackle their numerous geopolitical, economic and domestic policy headaches.
Cash Remains King
In the end, when all is said and done, we can all hypothesize until we are blue in the face, but no one really knows what the next four years will bring. Though I remain aware of the challenges we could face and the hurdles we have yet to clear, I am also a fan of the US and a champion of US agriculture, choosing to leave my bias at home, focusing instead on what actually transpires.
Soybean basis moves post-election were relatively inline with expectations as Brazilian cash values firmed and US values weakened (though some of that was driven by cheaper freight). Chinese values firmed as thoughts we could see trade slow began to circulate, with officials announcing and then cancelling an auction of nearly 2 mmt of imported soybeans scheduled for this week.
Corn remains a bit of a wildcard as we have somewhat limited logistical capacity through the end of December and are starting to see some competitive pricing from Ukraine and Argentina through the end of the year. The risk to trade with Mexico is my biggest worry when it comes to corn, and something I will be watching closely in the weeks and months ahead.
As we move forward, I will continue to watch negotiations and further developments between US and Chinese officials as well as trade flows as that will trump headlines every time—I’ll let you decide if the pun was intended.
As always, don’t hesitate to reach out with any questions. Have a great week.
On the date of publication, Angie Setzer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
