Tariffs against China mean higher prices at home
Threats of even bigger tariffs against China are attracting attention from buyers and investors, leading off this week’s edition of Futures File, our weekly commodities wrap-up:
Biggest trade war in history
This week, President Trump threatened China with stiffer tariffs ahead of trade talks. On Friday, he raised tariffs from 10% to 25% on a $200 billion worth of Chinese goods. For U.S. consumers, this will mean higher prices on goods imported from China, on items from toothbrushes and toilet paper to grills and refrigerators.
The new tariffs prompted retaliatory threats from the Chinese, which caused markets to tumble. U.S. stocks dropped to a five-week low on fears that economic shocks from reduced trade will continue to hurt companies.
Soybeans, which would likely be subject to Chinese counter tariffs, fell hard, trading near $8 per bushel for the first time since 2008. One third of all U.S. soybeans are typically exported to China, but sales have plummeted during the ongoing trade war.
Other agricultural markets including corn, cotton, and hogs tumbled as well, leaving U.S. farmers at risk of having devastating losses this year. If a trade deal can’t be cut, many are hoping for another bailout this year, mirroring last year’s $12 billion payout to U.S. farmers hurt by the trade war. However, Agriculture Secretary Sonny Perdue recently said there was no plan for another payment to farmers, leaving them caught in the middle of the Transpacific trade war.
Sunny start gets cheaper
Whether you start your day with a cup of coffee or a glass of orange juice, your morning breakfast budget is likely getting cheaper. Coffee and orange juice futures have tumbled to multiyear lows as supply outweighs demand for both commodities.
Wholesale coffee prices are under 87 cents per pound, the lowest level since 2005, and half of what the market fetched in 2016. Global supplies have been rising after producers expanded production over the last decade on hopes of rising demand; the expansion of coffee groves is now grinding prices lower.
Meanwhile, frozen concentrated orange juice futures fell to 90 cents per pound, the lowest level in nearly a decade. OJ is suffering from shifting consumer demand toward other fruit juices and away from sugary beverages in general.
Both coffee and OJ are also affected by a weak Brazilian currency, the real. A falling real encourages Brazilian coffee and orange producers to sell their goods on the international market, pushing prices lower worldwide as they seek to get their hands on more valuable currencies, like the U.S. dollar. This same phenomenon has sunk sugar prices lower as well, as Brazil is the world’s largest producer of all three commodities.
Opinions are solely the writers’. Walt & Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, Kansas. They can be reached at 800-411-3888 or www.paragoninvestments.com. This is not a solicitation of any order to buy or sell any market.