CHAOS.

Trade wars, tariffs, Trump.

The trading environment in recent weeks has been volatile to say the least, filled with confusion and a lack of clarity on tariffs and trade. Not to mention the chaos it has caused. On March 4th, the US's new tariffs on imports from their biggest trade partners Canada, Mexico and China went into effect. Markets reacted immediately.



The trade war, innitiated by the US, is causing panic in global agricultural and other markets. Soybean prices dropped over 5%, to their lowest level since January, below the symbolic $10/bushel threshold. The US imposed an additional 10% tariff on all Chinese exports, raising the total tariffs to 20%. China retaliated by imposing extra tariffs, primarily targeting agricultural goods, including a 10% import tax on soybeans. President Trump emphasized that reciprocal tariffs would be imposed from April 2nd; any countermeasures taken by Canada or Mexico would be met with further reciprocal tariffs.

Even if this recourse to tariffs would be nothing more than negotiating tactics, it undermines a fundamental principle on which trade relations are based: reliability; and they endanger important markets for the US, and also raise costs, not in the least for American farmers.

Given the uncertainty, instability and unpredictable consequences of trade wars, the fundamentals that normally determine prices, seemingly played a lesser role. Global oilseed/oils & fats trade flows may change dramatically, which some may see as an opportunity, as trade of agricultural commodities has always been global and regulated: variable import taxes in India, variable export taxes in Indonesia, export taxes in Argentina, EU deforestation and GMO requirements are all examples of government interventions that (can) weaken or strengthen fundamentals. Adding an extra layer of costs and/or taxes will only fuel the creativity of traders navigating an ever-changing seascape. Traders may also welcome the volatility as the more movement in a market, the more opportunities there are to make profits, whatever the direction of that movement.

But tensions eased somewhat last Thursday when President Trump temporarily exempted goods from Canada and Mexico under a North American trade agreement, from the 25% tariffs, he had previously imposed, for a month. After this, oversold markets recovered somewhat. That was the latest twist in a rapidly evolving trade policy that has unsettled many markets and businesses.

But even though the US has temporarily eased some tariffs on Mexico and Canada until April 2, nothing has been ruled out yet. Canada's retaliatory tariffs remain in place, even though the latter committed to delay the second wave of retaliatory tariffs scheduled to run, until April 2nd. And Chinese countermeasures will come into effect this week.

No one knows knows how long these tariffs will or won’t last and what happens next remains highly unpredictable, given the scheduled negotiations and the impulsive nature of Donald Trump's decisions. The question is: when will markets become numb to the chaos of ever-changing tariff news and flip flopping executive orders, and start trading their own fundamentals again?

Petroleum

Petroleum prices were down on increased supplies, higher inventories and US tariffs uncertainty. The postponement of some tariff plans has not alleviated concerns, as Canadian retaliation measures and Chinese actions loom. There are worries about the impact on global demand in an uncertain trade environment, a factor contributing to weak global economic growth. Russian oil exports and OPEC saying their April production increase would go on as scheduled also wheighed on price. Late last week, some support came from comments of the Treasury Secretary suggesting the US thinks of imposing extra sanctions on Russia for a ceasefire in Ukraine, and of ‘shutting down Iran's oil sector’ for peace in the Middle East…

Money

In these troubled markets the euro appreciated against the dollar. Some claim a deliberate action on the part of the US which wants lower interest rates to stimulate its economy and a weaker dollar. By creating chaos, they are in a way organizing their own mini-recession in order to lower inflation. Last week the value of the euro increased by almost 5% against the dollar to its highest level since November.

This increase is due to a planned defense spending increase in EU, which reduced the interest rate difference between the US and EU: fiscal stimulus increases budget deficits and inflation expectations prompting lenders to ask higher rewards (lending interest = a return for the capital + compensation for the investor’s inflationary expectations), leading to higher yields on long-term EU government bonds. And leaving less room for the European Central Bank to cut policy interest rates.

China too indicated it will strongly stimulate its economy if economic growth slows, in order to support domestic consumption and soften the impact of an escalating trade war with the US.

A weakening dollar and massive stimulus measures are a recipe for higher raw materials prices, from petroleum to agricultural commodities (if it were only as a hedge against inflation). But the question remains whether all of this is good for the economy or whether it only increases inflation. If one of the problems of many economies is debt and public deficits, increasing debt and deficits is probably not the solution. But as the Chinese strategist Sun Tzu pointed out to Aveno, in the midst of chaos, there is also opportunity.

Palm oil

The story is getting a bit repetitive and boring: seasonally low production coupled with unfavorable weather and now Ramadan, both further curbing production. Production and inventories are falling to their lowest levels in years, and exports are weak due to high prices that are killing demand. Hopes remain high for India, the main buyer, to increase imports from March onwards, after unusually low purchases in January and February. Production is still expected to pick up in the second quarter, with a consequent drop in prices to regain lost market share.

The palm oil story was however spiced up by reports of infestations in plantations, sending palm oil prices up again: There was talk of Ganoderma (a fungus) infecting especially the more vulnerable older trees, for which there is no cure except felling the tree. Old trees have to be replaced anyway, as they have passed the peak of their production cycle. A second report concerned bagworms eating the leaves of trees (in several regions of the Malaysian peninsula), threatening to reduce the production of fruit bunches by 40%. The Malaysian Palm Oil Board started spraying biopesticides and planting plants that can help reduce pest populations naturally.

Soybean oil

Chicago soybean and soybean oil futures sank further on persistent concerns over trade relations which also pushed managed funds out of the market. Weak energy markets and the expected record Brazilian harvest and improved weather conditions in Argentina pushed beans lower too. In Brazil, harvests are going well and Argentina got sufficient rainfall bringing soil moisture back to normal levels. Some places had so much rain floods occurred. 'When you pray for rain, you gotta deal with mud too,’ said Denzel Washington.

Bean Futures which had dropped below $10 rebounded and closed last Friday at $10.25/bushel and ‘Soybean Oil May '25 Futures’ closed $0.4342/lbs. after a potential easing of US tariffs was indicated by the Commerce Secretary on Thursday.

For the US, soybeans represent by far the largest volume of agricultural products exported to China. In 2024, 27Mmt of US soybeans went to China. Mexico is the second largest customer for soybeans, soybean meal and soybean oil while Canada ranks as fourth largest customer for soybean meal.

China has now imposed a 10% tariff on US soybeans and prioritizes on Brazilian beans which create strong export competition and keep US prices under pressure. US crush margins are under pressure too and reduce domestic bean demand. A weak demand from biodiesel producers is weighing on soybean oil, reinforcing the bearish scenario.

A lot of reasons for Managed Money to continue to liquidate soybean positions and further sell offs could accelerate the momentum and continue to drive markets lower. Last Commitment of Traders report showed Managed Money was net short 35487 soybean contracts of 5000 bushels (futures and options). But still long soybean oil.

Hard to tell where all this is going and what the impact will be on upcoming US corn and soybean planting intentions. And how oil price(s) (relations) will evolve in the US and elsewhere.

Rapeseed oil

In Canada, the market got hit by the US imposition of a 25% tariff on imported Canadian products on March 4th. This could significantly limit Canadian rapeseed oil exports (+ Canadian crush). In EU rapeseed futures prices dropped due to lower futures prices for Canadian rapeseed and last Friday ‘May ’25 rapeseed futures’ closed at €495.25/mt.

Most Canadian rapeseed oil is exported to the US biodiesel industry and if this outlet gets barred it increases the unsold supply of Canadian rapeseed, which could find its way to EU and compete with local rapeseed. Alternatively, the oil could also be of interest to India if palm oil stays high priced. Count on traders and wait and see what comes of it.

In EU, the market is still pressured by poor seed demand and continuing third country seed imports. In March, Australian seed is coming full force to EU. Australia's “Abares” also raised its estimate of the 2024 Australian crop by 350 kt to 5.94Mmt, compared with 6.1Mmt for the 2023 harvest.

Demand for rapeseed oil remained limited, and on nearby, meaning that low crushing margins on rapeseed remain. EU rapeseed oil prices eased on falling rapeseed futures, a weak US dollar, weaker petroleum prices and weakness in Chicago soybean oil futures.

Sunflower seed oil

This year, olive oil production is greatly exceeding expectations and prices more or less returned to what some consider normal. This invites consumers, whom had banned olive oil from their kitchen on previous high prices, to return to olive oil. And in some markets, there is now a shift from sunflower seed oil back to olive oil!

Sunflower seed prices are stabilizing. Reduced supply throughout EU and still firm oil prices are keeping the market under tension. Black Sea sun oil exports have been declining and global demand has been fairly weak. Oil has also felt the negative influence of rival vegetable oils as concerns regarding US tariffs and retaliation measures hang over the market. Prices moved lower but kept some strength of their own and although crude sun oil prices had fallen back on weakness in rival oils, they rebounded end of last week to levels around $1220/mt.

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