Headlines are still filled with Washington’s tariff threats and worries about global trade, but major equity and commodity markets have calmed down.
The panic over U.S. president Donald Trump’s initial tariff threats that tanked markets in March and April is now a receding memory.
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Indeed, the trade seems happy with corporate quarterly profit reports and, in agricultural crop markets, they are confident of adequate-to-ample supply of major crops.
The Standard and Poor’s 500 and the Nasdaq hit record highs last week and the Dow Jones Industrial was close to record territory.
Canada’s main stock index, the S&P/TSX, also posted a record high, as did London’s FTSE 100. Japan’s Nikkei index hit a one-year high.
Japan and the Trump administration signed a trade deal last week that enshrines 15 per cent tariffs on Japanese goods.
Tariffs of 10 to 20 per cent are also part of deals signed with Britain, South Korea, Vietnam and Indonesia, setting back what had previously been a slow march toward a low tariff world.
However, the markets appear happy for now that these deals avoid the worst of Trump’s tariffs threats.
Stock markets are also buoyed by the soaring prices of companies driving the artificial intelligence revolution.
However, market turmoil could return, depending on what Trump does as we reach his Aug. 1 deadline for trade deals. Canada and the European Union had not reached deals with the United States as of last week, and the U.S. might take a hard stance, levying extra high tariffs, or we might get the Trump “taco” response — Trump Always Chickens Out.
Also, the strong market gains since the April lows put it in an over-bought position that might trigger a correction sell-off that lowers prices for a while.
While stock markets rolled higher, most crop futures fell because the trade believes grain and oilseed supply will be comfortable.
The U.S. Midwest has enjoyed good growing weather this summer, and corn and soybean crop ratings are well above average.
Predictions of a hot summer have not played out. There’s been a mix of hot, cool, wet and dry periods with nothing sticking for long.
However, models show an increasing likelihood of high pressure ridges establishing that might cause extended warm, dry periods in August that could stress crops. We’ll see if the models prove correct.
U.S. spring wheat crop conditions are close to average, meaning we might see a return to normal yields after 2024’s record high.
The Wheat Quality Council’s spring wheat and durum tour of North Dakota last week estimated wheat yield at 49 bushels an acre, down from last year’s record 53.8. In recent years, 49 to 50 bu. an acre have been normal.
Durum was estimated at 37 bu. per acre, down from 45.3 last year.
In Western Canada, there is a mix of conditions, but at the recent Ag In Motion crop show, analysts said they expected an average size crop.
Globally, a much improved European wheat crop is expected to offset stable or lower production in other exporting regions.
The only market doing well is soy oil, which is buoyed by the favourable recent developments in American biofuel policy. From June 1 to July 25, soy oil futures rallied 21.6 per cent.
That market’s strength supported canola, which is also supported by strong demand and expectations of tight carry-out stocks.
Since June 1, new crop November canola saw a strong rally and then a pull back, but it was still up about five per cent as of July 25.
In the same period, new crop December corn is down three to four percent, November soybeans are up less than one percent and both soybean meal and spring wheat are down seven to eight per cent.
Other markets that have calmed are currencies and crude oil.
The Canadian dollar is back trading around US73 to 74 cents, as it did for much of last year, marking a recovery from the dip below 70 cents in January and February.
Crude oil is trading in the mid US$60s per barrel in the West Texas contract, a welcome return to stability after big swings earlier.
Worries about world trade and a commitment from the Organization of Petroleum Exporting countries to raise production more quickly than expected caused crude to fall well below $60 in April and May.
Then it soared well above $70 when Israel and Iran were bombing each other.
It is impossible to tell whether this market calm will continue. Policy volatility remains a hallmark of this American administration.
Supply chain disruption from tariffs is only now making its way into consumer prices and could feed inflation in coming months.
War and conflict in Ukraine and the Middle East hold the potential for further disruption.
But for now, it is a summer of market contentment.
