Market Prices Rally on Tariff News

OMAHA (DTN) -- Soybean contracts jumped 20 cents in midday trading on Wednesday, joining other commodities in a sharp rebound, after President Donald Trump took to social media to again raise tariffs on the biggest buyer of U.S. soybeans -- China.

New Chinese tariffs set Wednesday more than double the cost for Chinese buyers to import U.S. soybeans, but that didn't stop soybean futures from climbing higher.

UPDATE: On Thursday, the Trump administration clarified that the tariffs on China were actually 145%, not 125%. Separately, the European Union also agreed to freeze the 25% tariff on U.S. products that it had announced a day earlier.

President Donald Trump on Wednesday had stated he raised tariffs on Chinese imports to 125%, though that was adjusted higher with Thursday's announcement. At the same time, he announced a 90-day reprieve for tariffs on countries that have not retaliated against the U.S. That move sparked both stocks and commodities to rebound after the midday announcement on social media.

Trump's announcements came after both China and the European Union announced new retaliatory tariffs on the U.S.

Earlier in the day, China announced it was setting 84% tariffs on all U.S. goods coming into the country -- in response to Trump setting tariffs on Chinese goods at 104%.

The European Union also imposed 25% tariffs on Wednesday against U.S. products pegged to the U.S. setting 25% tariffs on European steel and aluminum. The EU tariffs target $23 billion worth of goods, including soybeans as well as poultry, almonds and orange juice along with non-agricultural products.

Trump posted on social media about 12:20 p.m. CDT that he would again raise tariffs on Chinese products. He also said more than 75 countries had contacted the U.S. Trade Representative's Office about negotiating trade deals. So, Trump said he would set a 90-day tariff pause against countries that have not retaliated.

"Based on the lack of respect that China has shown to the World's Markets, I am hereby raising the Tariff charged to China by the United States of America to 125%, effective immediately. At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable. Conversely, and based on the fact that more than 75 Countries have called Representatives of the United States, including the Departments of Commerce, Treasury, and the USTR, to negotiate a solution to the subjects being discussed relative to Trade, Trade Barriers, Tariffs, Currency Manipulation, and Non Monetary Tariffs, and that these Countries have not, at my strong suggestion, retaliated in any way, shape, or form against the United States, I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately. Thank you for your attention to this matter!" Trump wrote.

By mid-afternoon, tariffs between the U.S. and China looked like a lopsided basketball score -- 125 to 84.

And yet, soybean prices rallied. What gives?

The argument can be made that soybeans are still undervalued, said DTN Lead Analyst Rhett Montgomery.

In the 2018-19 trade dispute with China, soybean prices bottomed several times, hitting a low of $8.12 a bushel in September 2018. With inflation, that would adjust to $10.25 a bushel now. Planted acreage was roughly 5.5 million acres higher than the projected 83.5 million acres for the 2025-26 crop, according to USDA.

"So, the argument can be made, at least in my opinion, that beans are still undervalued even given the rocky relationship with China," Montgomery said.

Soybeans could move close to their pre-tariff levels barring a surprise in the USDA World Agricultural Supply and Demand Estimates (WASDE) report on Thursday, Montgomery said.

Still, without a change in direction, it might be prohibitive for Chinese buyers to look at U.S. soybeans in the short-term. The American Soybean Association said the stacking of normal duties, tariffs and value-added taxes in China right now puts import costs at just under 115%.

"So, if you send a bushel of beans to China that cost $10 here, it's going to cost $21.50 a bushel plus whatever shipping costs are when you get it over there," said Kentucky farmer Caleb Ragland, president of the American Soybean Association.

Soybean producers lost nearly $20 billion in economic value during the 2018-19 trade war. Soybean farmers saw permanent demand loss to Brazil, which has increased its sales to China. Chinese companies also have invested more heavily in Brazil as a result.

Ragland said in an interview with DTN he hopes cooler heads prevail. Financially, farmers are raising more concerns about what will come from the crops they are preparing to plant this spring.

"It is alarming looking at where the farm economy is as a whole to think about losing a big chunk of our export business and setting ourselves up to not get it back," Ragland said.

Ragland said ASA is calling on the Trump administration to negotiate a Phase One deal with China. The Phase One agreement sparked record exports in 2021 and 2022 before sharply curbing downward.

"Let's come back with a deal that makes us stronger than we've ever been and solidifies our soybean exports for years to come," Ragland said. "China needs us and we need them. That's the reality, like it or not. Our economies rely on each other significantly."

Ragland finds himself in a tough spot because he is advocating for soybean farmers who rely heavily on exports, but he backs President Trump and recognizes most farmers broadly support the president's agenda.

"I am a supporter of President Trump. I think the previous administration just laid over and played dead and did nothing to help us. They just didn't even know we existed a lot of the times. And I think that the president truly does want to put our country in better standing."

At the same time, production costs are significantly higher and Ragland said the tariffs will raise more concerns about demand for the next crop. Corn and soybean producers were already going into the spring forecast to lose $100 an acre, on average.

Ragland also pointed to cotton farmers raising similar concerns.

"So, it's going to cost us more to raise these crops ... higher even than it is now, and if we get less for them, there's going to be widespread failure of farms," Ragland said. "So, we're really at a crossroads. We can negotiate some better deals, but we need to be proactive in it and we don't need to be dragging our feet. We need to make that happen quickly and get this thing rectified because the long-term farm economy can't stand to see a significant decline in revenue just due to where our cost structure is. We just won't survive it, quite frankly."

The Trump administration has already been discussing potential aid for producers even as enrollment has opened for the $10 billion Emergency Commodity Assistance Program (ECAP) to help offset losses from the 2024 crop.

Also see, "USTR: Trump's Tariffs Spark Trade Talks, But Senators Remain Skeptical," https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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