Volatility Returns to Agriculture Markets Whipsawed by Trade

(Bloomberg) -- Trade fears are leaving agricultural traders feeling dizzy.

Volatility for farms goods is finally picking up as the saber-rattling between the U.S. and China intensifies. With lingering uncertainty over whether the nations will follow through on their tariff threats, futures swung amid the shifting outlook for demand.

China’s duties on American pork went into effect April 2, sending hog futures tumbling. By contrast, soybeans were able to recover from their lows as those tariffs remain a threat with an unclear timeline. The turbulence comes at a precarious time for American farmers, who are in the midst of making their planting decisions for the season. It’s also yet another potential threat to the agricultural economy, which has been plagued for years by low crop prices.

“The timing couldn’t be a lot worse for farmers,” said Justin Knopf, a farmer in Saline County, Kansas, who grows wheat, soy, corn, sorghum and alfalfa. “We have supplies of grain that we need to get moving. When we rely on an export market, and those customers begin to be affected and reduce their buying, that has a significant impact on those of us growing crops.”

Here’s what traders are watching in the markets:

Hog Collapse

Hog prices took a beating as China’s tariffs took effect. June futures fell to a record low as the duties came just after a government report that showed the American hog herd on March 1 reached a seasonal all-time high. Tim Ramey, an analyst at Pivotal Research Group, warned that U.S. protein supplies could “back up meaningfully.” The glut prospects weighed on shares of Tyson Foods Inc., the biggest U.S. meat processor.

Hedge funds are gearing up for more losses. In the week ended April 3, the net-long position in hogs fell 23 percent to 3,535 contracts, the lowest since April 2013, according to U.S. Commodity Futures Trading Commission data released Friday. The figure measures the difference between bets on a price increase and wagers on a decline. The move came as total short holdings rose for a fifth straight week.

Timing Is Everything

Traders and farmers alike are holding their breath to see whether China sticks with its plan to levy duties against U.S. soybeans. The oilseed is the second-largest American crop and prices are heavily dependent on trade with the Asian nation.

One bright spot for farmers: the trade rhetoric is heating up months before harvest. At this time of year, Brazil is the main global supplier, with a shift to the U.S. not coming until around September. That’s ignited some hope that a trade solution will be hammered out in the interim.

Weather Takes Over

Even as China targets U.S. farm goods, weather will still be a key factor for determining crop prices as the growing season gets into full swing.

Take cotton, for example. Beijing has plans to impose a 25 percent duty against American shipments. And while China is the No. 2 destination for U.S. supplies, prices still managed to shrug off the threat as focus shifted instead to the dryness that’s gripping West Texas, the nation’s biggest growing region. At the same time, there’s optimism that demand from other countries will also help compensate for the potential China slowdown. Vietnam is the top buyer of U.S. cotton.

To contact the reporters on this story: Megan Durisin in Chicago at mdurisin1@bloomberg.net, Marvin G. Perez in New York at mperez71@bloomberg.net.

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Millie Munshi

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