The Hueber Report

Obviously, there is only one story that is truly impacting markets this morning, which was/is the announcement by China as to the details of how they will retaliate to the tariffs announced by the U.S. last week.  No pun intended, but the measures they are proposing hit US agriculture squarely in the bread basket. On the list we find 106 different products, which includes soybeans, frozen beef, cotton, automobiles, airplanes, etc., etc., with a value of $50 billion that will have a 25% tariff imposed.  If these numbers sound vaguely familiar it is because the US tariff is also 25% on $50 billion in Chinese goods.  (People have often said China excels at copying what the US does) For those looking for a bright spot, it is fortunate that this is happening at the time of year when soy demand will naturally shift to South American anyway, but markets took little solace in that as we had beans trading as much as $.55 lower before bouncing back this morning.  While I have not seen how this will be divvied up between the products, considering that last year we exported $14 billion worth of soybeans to China, which is 28% of the $50 billion that tariffs will be leveled against us, it would appear that agriculture will be taking a disproportionate share of the hit. 

Now, if ultimately enacted, do I believe this is a death sentence for our export business with China as well as market rally potential? Certainly not, as more reasonable minds will hopefully yet prevail and none of this will go into effect.  Even if it does, they will still purchase our products, but we will have become less competitive on the world stage and will resume our role as the residual supplier to the world and as far as markets are concerned, a good weather scare would move this to the back burner quickly.  All that said, it is the long-term implications that come from these types of moves that we should be concerned about.  It provides buyers with the incentive to look elsewhere. To develop other relationships and to invest in other regions in an effort to avoid future trade confrontations.  Fifty years ago, we were the only game in town and when the world needed a replacement for fish meal as a source of protein and Russia came face to face with the failed collectivized farming system, the U.S. was there to fill in the void.  Today, South America produces more beans than we do and has room to grow and Russia is the number one exporter of wheat, capturing more that 20% of the global business.  You can say the same thing in the livestock industry as we are making it more difficult to do business with us right when other nations are beginning to invest in their own production and we have the technology to “manufacture” meat coming of age.  Prosperity in US agriculture is directly linked to our exports and for now we are being asked to fight for that business with one hand tied behind our backs.