Trade War 2.0 - Are Grain Traders Already Reacting??

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Trade tensions could potentially escalate if Donald Trump is reelected as president. 😬 Some Americans are considering voting for Trump in the upcoming election due to his economic performance during his first term, which included passing a significant tax overhaul. However, in his second term, there may not be a new tax plan in the works. Instead, Trump has indicated a willingness to expand the trade war initiated during his first term. If reelected, he has suggested imposing a 10% tariff on all imports, a move that could lead to retaliatory measures from other countries. Reports have even suggested that Trump has privately discussed imposing federal tariffs on Chinese imports at rates of 40% or more. It's important to note that this information is related to the agricultural markets and does not endorse any political candidate. 🌐

In the grain markets, fund traders are maintaining historically large net short positions across the complex. According to the latest Commitment of Traders data from the CFTC, funds were net sellers of 34,000 contracts of corn, resulting in a net short position of 275,000 contracts, the largest since mid-2020. For soybeans, funds were net sellers of 18,000 contracts, resulting in a net short position of 96,000 contracts, the largest since early 2020. However, funds were net buyers of 7,000 contracts of SRW wheat. 💰🌽🌱

Brazil's soybean harvest is progressing well, with 9% of this year's crop already harvested. This progress is ahead of last year when only 4.4% of the crop had been harvested at this time. Safras and Mercado estimate this season's Brazilian soybean crop at 151.4 million tons. The weather forecast in Brazil appears mostly favorable, while Argentina is expected to return to a wetter pattern later in the week. 🌦️🚜

The situation in the Red Sea continues to affect grain shipments, with more vessels opting to avoid the region due to ongoing Houthi attacks. Since the beginning of January, 3.9 million tons of grain have been diverted from the Red Sea, causing disruptions to the usual grain transit through the Suez Canal. Many of the diverted ships are reportedly carrying US grain. In January, it's projected that 2.4 million tons of grain will pass through the Suez Canal, down significantly from previous months. 🚢🌊

Finally, inflation appears to be easing, with the personal consumption expenditures price index showing a 0.2% monthly increase and a 2.9% year-over-year increase in December. Consumer spending also rose by 0.7% during the same month, exceeding expectations. However, personal savings decreased from 4.1% in November to 3.7% in December. The markets are currently pricing in a 53% chance of the Federal Reserve beginning to cut interest rates in March. 💹💰