Perspective: Morning Commentary for May 9

Perspective: Morning Commentary

Arlan Suderman

Chief Commodities Economist

May 9 – “The Art of the Deal” is at work, and that supports a positive tone as we close out the week on Wall Street, at least until the next headline anyway. That supported modestly higher stock futures overnight. No less than seven members of the Federal Open Market Committee will speak publicly today at various events, providing headlines throughout the day for Wall Street to digest regarding monetary policy. The VIX is trading near 22 this morning, while the dollar index is trading near 100.3. Yields on 10-year Treasuries are trading near 4.37%, while yields on 2-year Treasuries are trading near 3.86%. Both the Energies & the Ags were trending higher this morning.

An eighty percent tariff seems about right, according to President Trump, but he’s going to leave it to U.S. Treasury Secretary Scott Bessent. There’s a tremendous amount of trust developing between Bessent and Trump, as both seem to yield to one another, while Bessent always gives Trump the final say. Trump stated that he felt that an 80% tariff on China was probably appropriate as we head into tomorrow’s first round of negotiations between China and the United States in Switzerland. The U.S. currently has a 145% tariff on China, which China responded to with a 125% retaliatory tariff. President Xi Jinping is very popular in China, where he controls the message, after convincing his citizens that he’s the only world leader with the courage to stand up to the American “bully” that has been practicing “unfair trade practices” for years. As such, Trump needed to give him an out to get things going, allowing him to say that the States requested the talks. He then offered to lower the tariff to 80%, to give China the room to “respond.” An 80% tariff is still essentially an embargo, although it will allow a few more things to go through. But it’s part of the negotiation process, signaling that things are moving in the right direction.

It was that same ability to negotiate that got the first deal across the line yesterday with Britian. The two sides had been negotiating for months, trying to avoid a reciprocal tariff. Prime Minister Keir Starmer played on Trump’s love for Britian, where his mother was born. He avoided publicly criticizing Trump, as other world leaders had done, but focused on trying to get a comprehensive deal. Then Trump made his statements earlier this week while meeting with Canadian Prime Minister Mark Carney, indicating that he would gather his team in the next two weeks, come up with a number, and tell countries they could accept it if they wanted access to the U.S. consumer or reject it. Britian decided to get a less comprehensive deal done ahead of that, focused on the most critical areas to Britian – autos and the steel and aluminum industry. A deal was quickly reached, and both leaders came out winners. Starmer walked away with a deal for his most critical industries, and he can always come back for more later, while Trump got the momentum that he sought toward getting more deals to champion.

President Trump desires to use the negotiations with a plethora of nations to further contain China, which has become the master of finding different paths to get goods into the hands of U.S. consumers, getting around various U.S. restrictions and tariffs. That was evident in Chinese trade data released today, covering the month of April when President Trump’s reciprocal tariffs were enacted. China’s exports rose by 8.1% year-on-year overall in April, shocking analysts who had expected 2% gains. However, the data showed that the surge in demand was largely found in an increase in transshipments through other countries to the United States to get around President Trump’s 145% tariff on China. It typically does so through ASEAN countries – a group of countries known for handling transshipments. Shipments to ASEAN countries spiked 22.5% year-on-year in April, while direct shipments to the United States we down by 30 – 40% during the month. Nonetheless, China’s trade surplus narrowed to $96.2 billion in April, down from $102.6 billion in March. China’s economy feeds on that trade surplus that President Trump seeks to reduce with the tariffs.

Chinese grain imports totaled 3.03 million metric tons in April, up 64% on the month, but roughly half of the 6.03 mmt imported in the same month last year. China imported 8.63 mmt of wheat, corn, sorghum, and barley in the first four months of the calendar year, down sharply from the 25.87 mmt it imported in the same period last year. China’s total 2024-25 grain imports are expected to fall to 21.95 mmt this year as it seeks to become more self-dependent, down from 48.11 mmt the previous year. April soybean imports dropped to 6.08 mmt, down nearly 30% from the 8.57 mmt it imported the previous year due to slower customers clearance and slower shipments from Brazil. It was the lowest April soybean import total for China in a decade. Calendar year to date soybean imports total 23.19 mmt, down 15% from the 27.15 mmt imported in the same period last year. Soybeans are currently being sourced from Argentina and Brazil. Soybeans arriving at Chinese ports from Brazil are currently more than 70 cents per bushel cheaper than those that could come from the U.S. Gulf, while Argentine soybeans are more than $1 per bushel cheaper than those sourced from the U.S. Gulf. And that’s without the retaliatory tariffs.

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Perspective: Morning Commentary for May 9

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