Markets Affected By Trump Turnaround

Nov 17, 2016

The market continues to sort out the impacts of Tuesday’s surprise win for president-elect Donald Trump. The fundamentals of supply and demand will continue to have a large role in those prices, but the knowns and unknowns of Trump’s policy promises will also come into play.

On Thursday morning, Bryce Knorr, senior grain analyst at Farm Futures, said grain futures joined a broad-based rally in stocks and some commodities today, as volatile trading continues in the wake of Tuesday's U.S. elections.

“Dow futures surged to a new record high in the wake of the Trump turnaround on hopes for increased infrastructure and military spending, along with tax cuts. The dollar is also stronger, while treasuries and other global bonds are weaker on expectations for a pickup in inflation,” he said.

Bill Lapp, president of Advanced Economic Solutions, said there is a risk that, until Trump identifies priorities and key Cabinet positions are filled, markets may be inclined to move to a “risk-off” and settle in a strong U.S. dollar environment bias. “This would be at least marginally negative for commodity prices,” Lapp said.

Lapp added that existing supply and demand fundamentals and relationships will continue to be the primary driver of dominant commodities. “For the time being, changes in Washington, D.C., leadership is expected to have limited influence on commodity markets,” he said.

As evidenced by Wednesday’s grain and supply updates, U.S. and world grain and oilseed markets face an oversupply situation, which Lapp stated will not be affected by changes in Washington. However, agricultural groups Wednesday pounced on the high supplies and low commodity prices as another reason to pass the Trans-Pacific Partnership (TPP).


“TPP is the one thing Congress can do right now to increase farm income, generate economic activity and promote job growth. Campaign rhetoric has set America’s trade agenda back years. Let’s take a big step back in the right direction and pass TPP,” said National Corn Growers Assn. president Wesley Spurlock, a farmer from Stratford, Texas.

Lapp said the impact to trade could be dramatic, he said adding the largest risk is Trump’s promise to broadly interfere with trade — via tariffs on imports from China and Mexico, renegotiating the North American Free Trade Agreement and his demands for “fair trade.”

“It is difficult to discern rhetoric from reality,” Lapp said. “However, if these promises are carried out to some degree, they would carry the greatest risk for U.S. food business, both in terms of increasing costs and creating supply disruptions.” He noted that fruits and vegetables could be the first place such problems show up.

The American Soybean Assn. (ASA) also stressed the importance of trade, especially for soybean shipments to China and Mexico.

“We export half of all soy grown in the U.S.,” ASA vice president Ron Moore said. “One in four rows of beans goes to China, and Mexico is our second-largest market. We are eager to work together to illustrate how critical an aggressive trade agenda is for soybean farmers.”

Trump had publicly supported the Renewable Fuel Standard (RFS) throughout his campaign and consistently opposed any efforts to roll back this policy.

“We urge the president-elect and incoming members of Congress to remain steadfast in their commitment to breaking America’s addiction to oil and liberating consumers from the influence of the foreign oil cartel,” Americans for Energy Security & Innovation co-chairs Jim Talent and Rick Santorum said.

Lapp agreed that Congress is not expected to make significant changes to or repeal the RFS, but the Environmental Protection Agency "is tasked with setting annual volume requirements for biofuel usage. These will likely be set at higher levels if (as promised) someone from 'ag' is nominated and appointed to lead EPA."

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