Perspective: Mid-Day Commentary for January 30

By: Arlan Suderman, Chief Commodities Economist

Thu, 30 Jan 2025, 16:51

Perspective: Mid-Day Commentary

Arlan Suderman

Chief Commodities Economist

January 30 - The tech sector started well, but then quickly slid back into negative territory this morning, while the Dow did the opposite. The VIX is trading near 16 at midday, while the dollar index is trading near 107.8. Yields on 10-year Treasuries are trading near 4.52%, while yields on 2-year Treasuries are trading near 4.21%. Crude oil prices are modestly higher. Wheat prices are rallying on spread unwinds with corn and soybeans.

The trade is increasingly focused on Saturday's tariff threat relative to President Trump's promise to put 25% tariffs on all goods coming from Canada and Mexico on February 1st, along with 10% tariffs on China, if those countries individually did not do what they needed to do to stop the flow of illegal immigrants and drugs across the U.S. border. Howard Lutnick, U.S. Commerce Secretary nominee, stated that both Canada and Mexico are acting swiftly to meet the U.S. requirement. It is yet to be seen if they will do enough to satisfy President Trump by Saturday. I've long said that I expect an agreement with both Canada and Mexico to settle the issue. I've also stated that it will look differently for Canada than it will with Mexico, and that we should focus less on what these countries say and more on what they do. Neither Canada's nor Mexico's leaders want to look like they are weak before their own constituents, but they also know that they can't afford a trade war with the United States. As such, we may not see public announcements of what they are doing to meet the requirements, but we should look for the results. We may not get see sufficient progress by Saturday to avoid the tariffs, and the industry will be quite nervous until we do, but I still hold out optimism that it is coming.

Regarding their public posture, it's being reported that both Canada and Mexico are preparing counter-tariffs if the United States follows through with its tariffs. We are major commodity traders with both countries, but we should not expect retaliation on all commodities leaving the United States. For example, Mexico has given indications that retaliatory tariffs would initially exempt the auto industry, which would spare one of its most important manufacturing sectors from the pain of a tariff war for now. Reuters reports that Mexico is preparing retaliatory tariffs of 5%, 10%, and 20% according to some sources, but the plans have not been finalized. The most likely application of the tariffs would be on pork products, cheese, apples, grapes, potatoes, cranberries and Bourbon whisky, as well as on manufactured steel and aluminum, according to Reuters, which reports that these products were chosen based on their expected impact on regions that provided strong support for Trump in the November election. Most notably absent from that list is corn and soybeans. The bottom line is that retaliatory tariffs are being drawn up to show each nation's citizens that they are responding, but they are not expected to match the U.S. tariffs because they cannot afford to do so amid their own current economic challenges.

Exporters sold 53.5 million bushels of old-crop corn, 16.1 million bushels of soybeans, 16.8 million bushels of wheat and no milo in the week ending January 23. U.S. soybeans are no longer competitive with harvest progressing in Brazil, while U.S. corn buyers have fewer options. Marketing year to date corn export sales exceed the seasonal pace needed to hit USDA's target by 223 million bushels, while soybeans still exceed it by 100 million bushels.

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