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【 Attention 】 The comprehensive impact of the US election results on commodities
Publish in 2024-11-07 14:45:30
On the early morning of the 6th local time in the United States, Republican presidential candidate and former President Trump delivered a speech at the Palm Beach Convention Center in Florida, announcing his victory in the 2024 presidential election.
Trump's main policy proposals include: (1) in terms of trade policy, adopting more aggressive tariff policies, imposing a benchmark tariff of 10% on imported goods, canceling China's most favored nation treatment, and increasing tariffs on Chinese goods by 60%; (2) In terms of energy and chemical industry, we attach great importance to the development of traditional fossil fuels and relax the permits for oil and gas drilling and extraction; (3) In terms of finance and taxation, we promote economic growth by stimulating domestic demand and advocate for large-scale tax cuts domestically; (4) In terms of immigration policy, strengthen immigration control to reduce the number of illegal immigrants and alleviate labor market pressure.
This article will focus on interpreting the comprehensive impact of Trump's election on bulk agricultural commodities.
Soybean meal
Trump had already stated before this election that he would impose tariffs of 60% or even higher on China. The United States is an important trading country for China, and once the United States imposes tariffs on China's manufacturing industry, China is likely to take equivalent countermeasures in the agricultural sector. The situation of imposing tariffs on US soybeans is highly likely to occur. China is highly dependent on imports of soybeans, with an annual import volume of about 100 million tons, of which about 20-30 million tons are imported from the United States. China's dependence on US soybean imports is not only reflected in absolute quantity, but also in seasonality. Generally, China's demand for US soybeans is reflected in the shipping schedule from October to January each year, corresponding to the domestic soybean meal supply from November to February. Therefore, the mutual imposition of tariffs by the two countries will have a significant impact on both the cost side and future actual supply, driving up the price of soybean meal.
However, to measure the impact of the imposition of US soybean tariffs on domestic soybean meal from a fundamental perspective, it is necessary to measure it separately in the short and long term. Firstly, in the long term, global soybean imports were around 177 million tons last year. Based on natural growth, imports are expected to increase to around 180 million tons this year. Assuming a production of 170 million tons for Brazilian soybeans, exports will be around 100 million tons. Under the assumption of fully supplying to China, other countries will need to provide approximately 80 million tons of exports. This will result in a relatively tight global production of 400 million tons next year and a production assumption of 220-230 million tons for other countries, requiring Brazil to provide exports, which includes some uncommon trade flows. Therefore, it is insufficient for Brazilian soybeans to supply China alone. By the end of the Brazilian supply season, China's soybean imports will become tight, which is beneficial for both unilateral and long-term basis increases. But the near end risk may not be significant, mainly reflected in the time difference. Currently, China's soybean shortage with the United States is mainly reflected in December January, with a total estimated amount of around 8 million tons. Brazilian beans will be concentrated in the market from February to March April, and China's soybean shortage with the United States is likely to not exceed 5 million tons. And Trump's inauguration is not until January 20th, which means that the United States is likely to announce tariffs on China after that. Therefore, the actual gap may mainly be reflected in March and April, so the total amount may not exceed 3 million tons, and the impact is relatively limited.
Looking back at the fundamentals, the bean market is characterized by loose supply in the 24/25 fiscal year, and China's soybean crushing profits were good in December. However, there is still supply pressure in the near end. Trump's tenure will have a boosting effect on the market and soybean meal basis in January and February, but the space is limited. There is significant potential for boosting the Far Eastern market.
Oil and Fat
The impact of Trump's election on oil will be more reflected in the production of firewood. According to the Trump administration's philosophy on energy, it tends to support the extraction of traditional fossil fuels to reduce energy costs and drive down oil prices, while its support for renewable energy is relatively weak. Previously, the EPA postponed the release of the new RFS biofuel blending target, which was originally scheduled to be announced at the end of October or early November this year, until March next year. Based on the above governance concept, the Trump administration may impose restrictions on the growth space of RVO obligation blending after 2026, which will have a certain adverse impact on the varieties of American firewood produced from soybean oil, including vegetable oil.
However, there are many factors that affect oil prices, and the butterfly effect of oil under the joint influence of the new US government's energy, economic, and foreign policies will also be more complex. Therefore, it is still necessary to observe the changes in later policies, as well as the dynamic adjustments in domestic and international macro aspects and oil production.
Cotton
Trump has repeatedly declared during his campaign that he will impose an additional 10% tariff on all goods imported into the United States and at least 60% tariff on Chinese goods after his election. After Trump's re-election, the trade relationship between China and the United States may become tense again, and US cotton exports may face significant problems. China accounts for 40% of the US cotton contracted export market in 2023, and the tense trade relationship between China and the United States is a negative impact on US cotton. For Zhengmian, the United States is China's largest textile and clothing export market, accounting for about 15% of the total export value. Once the United States imposes high tariffs on Chinese clothing, the impact on domestic textile and clothing will also be significant, affecting downstream consumption of cotton. Therefore, it is bearish for Zhengmian. During the trade war between China and the United States from 2018 to 2019, cotton prices experienced a significant drop.