Ever since it became clear that Donald Trump was odds on to win the election, markets started moving. Once he was elected, they really started moving – but only some. Cryptocurrencies went wild whilst the USD ventured on a steadier ride up. Meanwhile agricultural commodities stagnated, with no clear direction.
Why is that? Ordinarily, agricultural commodities, like wheat, move due to basic supply and demand principals, with demand being steady and supply determined by seasonal factors. If it rains - prices fall, when it doesn’t - they go up. Simple really. It’s the opposite with livestock. When it rains, growers pay more to stock up and capitalise on the free feed and, when it doesn’t, they flood the processors at the same time so prices fall.
But there is a secondary force in play - politics. Donald Trump can be categorised in many ways but not many would argue that he is predictable. Although he made many election promises that will impact global trade and US domestic markets, no one is expecting him to stick to all of them. The question is, which ones will be implemented, what new ones are coming and what influence will industry and fellow Republicans have as part of standard political back scratching? And consequentially, how will global players respond?
Some have tried to estimate what some of the consequences could be - they are large.
A much cited scenario is if Trump implements 60% tariffs on Chinese imports. The table hither displays one estimation by a US outlet of USD impacts on American farmers should China retaliate in a similar manner as to how they did in 2016-20. By comparison, the entire agricultural output of WA in 2024-25 is circa USD $6 billion.
As there are so many scenarios with differing probabilities, it becomes almost impossible to chart a course. Some examples include:
· Altering sustainability policies resulting in lower demand for biofuels - 40% of the huge US corn crop is used for ethanol, with an increasing amount of soy being crushed for Sustainable Aviation Fuel and biodiesel.
· Implementing more, or removing, sanctions on Russia - not only impacting the largest tradeable source of wheat but also energy prices altering supply chain costs.
· Going to ‘war’ with Canada and Mexico who are significant trading partners of foodstuff in unprocessed and processed state.
· Placing restrictions on agricultural chemical usage (Robert Kennedy Junior ideology) - limiting the US grower toolkit and reducing yields.
· Deporting illegal immigrants, who make up to half of the agricultural workforce.
There are many more indirect knock-ons to agriculture from other policies. The grandaddy is the US dollar increase on the back of inflationary impacts keeping interest rates higher for longer. This makes US production more expensive, lowering competition for Australian farmers but also means John Deere, New Holland and Case equipment is relatively more expensive along with anything else imported from the US.
At least the saving grace is that Australia is not in the cross hairs of any direct US tariffs…. (yet).
The upshot is uncertainty, and uncertainty means risk. Taking risk should equate to higher returns but only in fair markets. At this point intime, knowledge of information that will materially move markets is only held by those in Trump’s immediate orbit, including the swelling mob of billionaires that have a seat at the table, (i.e. the market is not classically ‘fair’). For those not in that purple circle (the vast majority of market participants), the preferred option has been to edge into positions only when absolutely required, taking as little risk as possible until the fog clears.
The irony is that in risky and volatile times, the US market was traditionally seen as a ‘safe haven’. Currently, the US market is looking more like a dive bar ten minutes after midnight – anything can happen – and it's likely to spill on to the street and impact as far away as WA. Best grab a pool cue and stand with your back to the wall!
