July 7 – It’s all about tariffs this week, as the world again braces for what might become of the 90-day pause on President Trump’s reciprocal tariffs when that pause expires tomorrow night. How many trade deals will be announced, and what will happen with the remaining countries? The flow of economic data is rather light this week, allowing traders to stay focused on developments in the tariff arena. Stock futures are mixed to weaker this morning, although the major indices remain near record highs. The VIX is trading just below 18 this morning, while the dollar index is trading firmer near 97.4. Yields on 10-year Treasuries are trading near 4.35%, while yields on 2-year Treasuries are trading near 3.87%. Crude oil prices are quietly firmer after erasing overnight losses, while the grain and oilseed sector came under heavy selling pressure overnight.
The European Union is optimistic that it can reach a trade agreement with the United States by Wednesday after European Commission President Ursula von der Leyen had a good exchange with President Donald Trump today. The EU has reportedly backed away from seeking a comprehensive trade deal with the United States, with many significant trading issues remaining between the two trading partners. But they are pursuing a deal strong enough to avoid an increase in tariffs on July 9 when the 90-day pause expires. Tariffs sit at 10% under the pause, but they would be expected to rise to 20% on Wednesday if no agreement is reached. Germany in particular has been pushing to get a deal to avoid that tariff increase. The Trump Administration is focused on reaching agreements with 18 key trading partners responsible for 95% of the U.S. trade deficit. As such, the White House hopes to announce a series of trade deals / frameworks the next two days. U.S. Treasury Secretary Scott Bessent stated that Trump would send out letters to 100 smaller countries with whom the United States does not do much trade indicating that they would face the higher tariff rates set on April 2. He indicated that trading partners who fail to reach an agreement will receive letters announcing that they will face the higher tariffs effective August 1 if no agreement is reached in the meantime. White House National Economic Council Chair Kevin Hassett stated that there could be some wiggle room for those nations deemed to be negotiating in good faith. The White House appears to be using the framework agreements reached already with Britain and Vietnam as models for other countries.
Look for many of those achieved trade deals to contain language that helps in President Trump’s efforts to contain China, similar to the language in the agreement with Vietnam that includes a 40% tariff for transshipments. That continues to anger China, which continues to threaten retaliation against countries who do so. Its neighbor Vietnam signing such an agreement with the United States that hurts China is one thing, but a similar agreement with the EU would be a bigger blow, with the EU being one of its largest trading partners. China and the EU are set to hold a summit and a series of events in Beijing later this month to celebrate the 50th anniversary of diplomatic relations, but some events have reportedly already been cancelled, which may be an indication of the strained relations. That suggests that China’s chances of resolving its own trade differences with the EU may be slim, suggesting more problems for its exports, and for the manufacturing sector that supports those exports. President Xi refused to attend last week’s BRICS meeting in Brazil, stating that he had schedule conflicts, while Russian President Putin simply addressed the attenders via video. BRICS has added many countries in recent years, but its membership doesn’t seem to have the stomach for doing anything that might hurt the United States.
The Fourth of July holiday weekend is often very pivotal for corn and soybean prices, and that looks to be the case once again this year as well. Traders returned from their holiday break last night to find that the 15-day outlook, that extends deep into the corn pollination period, continues to look quite favorable for crop development, with the outlook beyond that looking a bit better as well. Traders shifted into an assumption that the crops will be big until shown otherwise, triggering a fresh round of speculative selling. The momentum trading Algos then piled on additional sell orders to amplify the move. There are certainly areas where rain is lacking – specifically in Illinois and parts of Indiana – but temperatures are rather moderate for this time of year, allowing crop conditions to remain good thus far. We’ll get an update on crop conditions from USDA this afternoon, which will no doubt have an influence on tomorrow’s session. Keep in mind that crop ratings normally trend lower this time of year, so yield models continue to rise if ratings declines fail to match that normal tendency, which has been the case in recent weeks. The trade has made a habit of shorting corn in particular in recent weeks on Mondays prior to the condition report releases, while they actively shorted soybeans overnight this week as well. Wheat continues to suffer under seasonal harvest pressure as a big crop comes in. It’s possible that we could get trade deals announced this week that are seen as beneficial to demand for U.S. commodities. That could give us periods of strength, but the primary focus for the Ags should remain on growing season weather over the next 30 – 45 days absent a blockbuster deal.
