Written on 6th March 2025

“There are decades where nothing happens and weeks where decades happen.”
– Vladimir Ilyich Lenin

The above phrase sums up the past week quite nicely; since Trump’s re-election and subsequent tariff threats, we have now witnessed the implementation of said tariffs and the response from those in the US government’s sights.

The Headlines

• The US has implemented 25% tariffs on Canadian and Mexican goods
• Canada responded with 25% tariffs on $20.7 billion worth of U.S. imports, including orange juice, peanut butter, wine, spirits, beer, coffee, appliances and motorcycles
• Mexico has also vowed to retaliate with their response, which was due over the weekend.
• The US has increased tariffs on China by an extra 10%
• China then placed 15% tariffs on US wheat, corn, cotton and chicken and 10% on soybeans, sorghum, pork and beef.
• On the 4th of March, President Trump stated that he would be pausing military funding for Ukraine.
• Both Canada and China are set to raise the implementation of S. tariffs with the World Trade Organisation.

How will our Commodity Prices be affected?

(the below comes with a caveat; it could all change tomorrow!)

Australian wheat & barley could benefit from this trade conflict between the US and China but canola demand, and prices could be negatively affected.

Wheat/Barley

Since its inception, we have used CBOT wheat as the most accurate indicator of international wheat markets as the US and Australia have many common export destinations. The recent Chinese tariffs on US wheat imports will weaken that relationship, which we have already seen via a reduction in CBOT pricing while local prices remain steady. As a result, it will be important to look at other indicators of international price rather than CBOT alone.

As for local wheat and barley demand, the Chinese tariffs on US grains mean there is a distinct possibility that other origins will replace US corn and sorghum imports, hopefully Australian. Before we get too excited though, we must factor in that Chinese imports are down between 54% – 93%, depending on the commodity, from 2023. This is mainly due to a large local crop, subdued economic activity and earlier accumulation of stocks (to protect against an impending trade war possibly?), so we may have to wait until their internal stocks run down.

In addition to the above, Ukraine’s deep sea port of Odesa (which moves up to 80% of the country’s ag exports) could be more susceptible to Russian military attacks if the US pulls all funding; any disruption to exports from Odesa will be supportive to Australian wheat prices.

Canola

The impact of the trade war on our local canola prices could, unfortunately, be a negative one and the reasons for that occurring are a little easier to outline. Firstly, there is uncertainty for biofuel producers in the US surrounding the newly introduced US federal tax credit regulations, which allow producers to claim credits for biofuel produced. If they don’t know the exact value of the credits, there will be inconsistencies in profit margins leading to less production. Less production means less demand for feedstock and subsequent lower demand for Canadian canola oil (lower crush margins for Canadian crushing plants), making more canola available to export to Australian markets.

The US tariffs imposed on Canada only worsen this problem; Canadian canola oil becomes more expensive = with less demand = more Canadian canola competing with ours in our traditional markets. In many cases, you’d be forgiven for thinking this is just a readjustment to trade flows, but in this particular case, it is actual demand destruction. The only bright light on the horizon, and it’s a dim one, is once Chinese stockpiles of soybeans have been used, demand for canola may increase given the tariff on US soybeans.

Summary

The ABC’s Alan Kohler used a recent quote from Deputy Reserve Bank Governor Andrew Hauser when presenting the finance segment on the news, which sums up the current trading environment quite well.

Hauser mentioned that the US Army’s war college trainees in the late 80s were taught to see the world as VUKA.

VUKA stands for Volatile Uncertain Complex and Ambiguous, and he said it is back with a vengeance, which is depicted in the chart below.

The bottom line is that uncertainty and volatility are the only things we can be sure of. We always expected some chaos with the new administration in the US, and they haven’t disappointed. The biggest issue we all face is not necessarily the tariffs themselves but the unpredictability of Trump and his advisors and the broader effects of a global trade war. Trying to anticipate what will happen next, and how that will affect our local commodity prices, is akin to driving down a country road at night with no lights while looking out the back window – difficult and dangerous!