Earlier this month President Trump announced tariffs against China. Beijing retaliated with their own list of tariffs and, unless the two governments can come to agreement, those tariffs go into effect on July 6. What are the best and worst-case scenarios given the tariff timeline? Bob Utterback of Utterback Marketing and Doug Werling of Bower Trading hash it out with U.S. Farm Report host Tyne Morgan on this week’s Markets Now.
If these tariffs do go into effect next Friday, we’ll see corn well below the cost of production, Utterback said.
“I think $3.10 - $3.20 corn futures will be the long-term low,” he said. “[It will] take beans back down to $8.10 - $8.20. [Prices will be] low with wide basis.”
Long-term, Utterback said that would eventually reduce acres and throw markets into a long term bullish cycle.
“At this point it’s showing our central weakness in our demand function,” he said adding that our markets are too heavily dependent on export markets. “We should be focusing more on domestic utilization if at all possible or the only alternative left is supply contraction.”
According to Werling, the issue is really about timing. If these tariffs go through, that will be an opportunity for Brazilian soybeans. But it could also be good for U.S. corn.
“So if we get into this trade issue, and this goes through, well, Brazil is going to come in here, they're gonna be No. 1 in soybeans, they're probably not going to be deforesting and expanding like they had in the past can be harder. That's going to come from somewhere,” he explained. “So the good thing is, you know, maybe we can pick up some market share on corn because they won't be able to export as much. That is, if we don't make too many people mad in this process.”
He says the long-term ramification of trade war are the most frightening.
“We shut ourselves off from the world and the world says, ‘Well, we’ve got to figure out how to get our supply needs from somebody else because they're independent,’” he said. “We went through it in the grain embargo and we went through it in the 30s. Protectionist measures in markets and dealing with food is a bad thing down the road. I don't like it as a negotiating tool at all.”
According to Werling, the best-case scenario at this point would be to recapture trade. If the U.S. can recapture trade from China, that will undo some of the damage that has already been done, he said.
“The best-case scenario is we salvaged the business that we are hurting right now and gain more.”
From a price standpoint, the short-term outlook comes down to yield, Utterback said.
“If we're to 180 we won't get back above the spring highs, but if we can get back down to around 72 then you can get more optimistic,” he explained. “But right now, you're probably looking at 1.9 billion bush will carry over and that's not going to support $4.25 - $4.50 corn and without something significant happening.”
You can check out Morgan’s full marketing discussion with Bob Utterback and Doug Werling on U.S. Farm Report this weekend. Watch locally, watch on RFD TV, or you can watch on www.usfarmreport.com.