Welcome back, Mr. Trump

On Tuesday, November 5, the world anxiously followed the United States elections. Finally, Trump was named the new president, and doubts arose about the possible consequences of this second term. Above all, it must be considered that he has a large majority in the House of Representatives, the Senate, and the Supreme Court, and also that throughout the entire campaign, he has shown his predisposition to influence the decisions of bodies such as the Fed (Federal Reserve), so far with directives independent of politics.

The EU market has not been unaffected by the doubts and uncertainties raised by the change of government. Once the feed manufacturers breathed a little easier due to the postponement of compliance with the EUDR law (European Union Regulation on Deforestation-Free Products) that we mentioned in the previous article, the tranquility was short-lived, as usual, and doubts and uncertainty settled back into the market. We have received several questions about the implications of the new Donald Trump administration, so we will try to unravel what we can expect. We are certainly not going to enter into politically biased assessments, we are simply going to focus on what concerns us.

If we look at Trump's first term in office, his big wager was the protectionism of U.S. products against what he considered unfair practices, mainly from China. This trade war between these two countries caused great uncertainty globally and readjustment in supply chains (later aggravated by the appearance of COVID and the supply shocks it generated). The imposition of tariffs on several products of Chinese origin had consequent retaliatory tariffs by China on products of U.S. origin. For example, in 2018 China established the first phase of imposition of tariffs, which was 25% on $34 billion in U.S. goods, which included a 25% tariff on soybeans, 25% on pork, and tariffs of between 5% and 25% on other agricultural products.

The imposition of the 25% tariff on products such as soybeans, corn, and other agricultural products caused suppliers to look for alternative markets to sell these products, causing greater competition for European products, which had to compete in the different purchasing markets with products of U.S. origin. Soybean was one of the products most affected by the trade war, since before China bought almost 60% of the American production. With the trade war, China switched to buying from Brazil and Argentina, and North American farmers had to look for alternative markets to be able to market their soybeans in the face of the tariff war.

There was also a greater disconnect, if that is possible, between U.S. and European agricultural policies. Trump advocated for greater introduction of genetically modified products and greater deregulation of federal laws in sectors such as finance and energy (reduction in the use of renewables versus fossil fuels) but also for less regularization of agricultural practices. Europe, on the other hand, responded in exactly the opposite direction, opting for sustainability and stricter laws (the famous farm-to-fork strategy).

As for the currency, which is so important for our prices, we have seen that since the proclamation of Trump as the winner of the elections there has been a continuous rise of the dollar against the euro, with the consequent increase in the price of exports. We can expect this to continue for now, at least until he takes office in January. From then on, we will see if he is really going to reinstate protectionist policies, which a priori would weaken the dollar, or if he will take other paths. What is clear to us is both President Trump and the other members of the government he is putting together will generate business, movement, and volatility in the markets.

Another important factor for price determination is oil, due to the impact of freight on the landed prices of grains and other agricultural products. President Trump is an outspoken supporter of fossil fuel use against renewable energy policies. However, JPMorgan has just published a rather bearish forecast for crude oil over the next two years. It forecasts Brent crude oil prices similar to $73 a barrel during 2025 and $61 a barrel by 2026 due to a possible economic slowdown (assuming that production in OPEC-producing countries will be similar to current levels).

In January we will be better able to see the consequences of the policies to be implemented by the United States, so if you have any questions please do not hesitate to contact us, we will try to answer them.