July 11 – Stock futures came under pressure overnight after President Trump added Canada to his list for implementing reciprocal tariffs, while Europe braced for the possibility of also receiving a letter. The VIX is trading firmer near 17 this morning, after probing below 16 yesterday for the first time since February. The dollar index is firmer near 97.8. Yields on 10-year Treasuries are trading near 4.40%, while yields on 2-year Treasuries are trading near 3.90%. Crude oil prices are 1% higher today, while the grain and oilseed sector was mostly in the red ahead of today’s big USDA WASDE crop report.
President Trump put a 35% tariff on Canada as the list of countries facing increased tariffs continues to rise. The president became frustrated by the lack of progress in talks with Canada, resulting in the 35% tariff being assessed. President Trump indicated that the rate may increase if Canada chooses to retaliate, similar to what he did with China back in April. That has the European Union bracing for a possible tariff letter as well. The EU has been engaged in intense negotiations with the White House for weeks, trying to reach a trade deal. But those negotiations have thus far come up empty. U.S. Treasury Secretary Scott Bessent convinced the president to delay reimplementation of tariffs until August 1, believing that we were close enough to reach deals with the European Union and others if we just had more time. But the president wanted to at least announce what the tariffs would be after August 1 to provide some additional incentive to push these negotiations over the finish line. I believe that the EU wants a trade agreement, but they also are very committed to protecting some areas, just as Trump is, and those areas of protection are in direct conflict, making reaching an agreement difficult. I think that we have to assume that there will be a few more trade agreements between now and August 1, but also that there will be some substantial tariff increases on those countries with which we do not have agreements. The big question then for the commodities will be, what retaliatory steps do those countries implement, and how will that reshape global trade?
Many observers forgot about the new port fees targeting Chinese flagged and / or made ships to be implemented later this year amid all the focus on tariffs. But the industry has its eyes on both issues. China dominated the global shipbuilding industry until the announcement of those port fees earlier this year. But new orders for Chinese built ships are down 68% year-on-year since the port fees were announced, according to global maritime intelligence-Clarksons, while orders for South Korean built ships are only down 7% amid the tariff uncertainty. South Korea is the #2 shipbuilder in the world. As a result, the share of new ship orders received by China fell to a 56% market share, down from 75% of the orders last year. South Korea’s market share rose to 30%, up from 14% in 2024. The fees amount to $50 per net ton for Chinese-owned or operated vessels landing at U.S. ports beginning October 14, increasing to $80 per ton on April 17 of next year, and then increase again to $110 per net ton the following year. Those fees rise to $140 per net ton by April 17, 2028. Other fees apply to Chinese made, but not operated, vessels, but vessels arriving empty are exempt. This is again another hit on the Chinese industrial sector, along with the impact of the tariffs. As a result, the government is ramping up employment aid for companies who hire unemployed young people between 16 and 24 years of age, while also subsidizing the hiring of migrant workers returning to rural areas of China after losing their jobs in urban areas. Recent comments made by China’s top economic planner suggest that it may be considering building more megaprojects that would employ people.
USDA will release its monthly WASDE crop report at Noon Eastern Time today. The July report is normally one with few surprises, but there are a few things to watch. First, the agency will incorporate the stocks and acreage numbers from the June 30 report into its domestic balance sheets. Those changes should not be significant, and they’re largely already priced into the market. Second, I look for USDA to raise its old-crop corn export target by close to 75 million bushels, while it may partially offset that with a 15 – 25-million-bushel decline in ethanol use of corn. The net result will be even tighter old-crop stocks, but the markets will continue to focus on new-crop dynamics, believing that we will not run out of corn ahead of the upcoming harvest that will begin next month in the South. We could also see USDA raise its old-crop soybean export target by 10 – 20 million bushels, but it could also justify reducing new-crop soybean exports – although I think that it will wait another month or two before doing that. We should also see USDA make adjustments to its South American corn and soybean production estimates, and that may include a rather substantial increase to Brazil’s corn production estimate. If so, that could argue for a lower U.S. new-crop corn export target, although I think USDA would like to wait a bit longer before cutting next year’s exports. The fact that the Mexico border is closed to feeder cattle coming north should boost corn exports to that country going forward, but that would largely be offset by a decrease in U.S. feed usage. The same cattle are being fed – just on a different side of the border.
