US tariffs increase volatility in grain market

The grain market begins the week under heavy influence from trade tensions between Brazil and the United States, with a focus on the deadline for the possible imposition of 50% tariffs on Brazilian products, scheduled for August 1st. While favorable weather in the US reinforces expectations for a record harvest and pressures prices on the Chicago Board of Trade, domestic soybean and corn prices remain supported by local factors, such as high export premiums, strong demand, and a delay in the second-crop harvest. This information is from the Grão Direto Specialist Analysis, released today (July 28th). See below: 

How did the soybean market behave?

American crop pressure: The favorable climate in the US agricultural belt consolidated expectations of a record harvest, exerting strong downward pressure on prices on the Chicago Board of Trade (CBOT). 

Resilience in the Brazilian market: In contrast to the external scenario, prices in Brazil were supported by high export premiums and strong international demand, especially from Asia. 

Geopolitical tension: The imminent application of 50% tariffs by the US on Brazilian products, starting August 1, added a geopolitical risk premium, boosting demand for Brazilian soybeans and exchange rate volatility. 

What to expect from the soybean market?

Tariff deadline (01/08): The outcome of the trade crisis between Brazil and the US will be the main driver of volatility. The market will react intensely to any news about negotiations, postponement, or implementation of tariffs, with a direct impact on the exchange rate. 

US Weather and USDA Report: Continued favorable weather conditions in the U.S. and the new crop monitoring report will keep pressure on Chicago. Any sign of crop deterioration could trigger recovery movements. 

Pace of Brazilian exports: the strength of demand for Brazilian soybeans and the support of premiums at ports will continue to be crucial to protect domestic prices from the international downward trend. 

How did the corn market behave?

Historic delay in the second crop harvest: the main supporting factor in Brazil was the severe delay in the second crop harvest, which restricted short-term supply and kept domestic prices firm despite external pressure. 

“Perfect” harvest in the USA: As with soybeans, the exceptional conditions of American crops, with 74% in good to excellent condition, put strong pressure on prices in Chicago. 

Internal demand: The heated consumption by ethanol plants and the animal protein sector acted as a floor for prices in Brazil, competing for the limited volume available in the physical market.

What to expect from the corn market?

Internal supply/demand: the increased availability of corn on the market could increase pressure on domestic prices throughout August if demand eases. 

Ethanol plants: strong demand from the ethanol sector, driven by the increase in the gasoline blend (E30), will continue to be an important supporting factor, helping to absorb the growing supply.

Exchange rate impact: exchange rate volatility, linked to the tariff crisis with the US, will continue to impact export parity and producers' marketing decisions. 

Macroeconomics and opportunities

The week was dominated by the countdown to the August 1 deadline for the US to impose 50% tariffs on Brazilian goods. Tensions escalated with the announcement of a formal US trade investigation (Section 301) against Brazil. The dollar traded volatilely, acting as a barometer of geopolitical risk: its value rose on news of a stalemate and fell on signs of possible US trade agreements with other partners, such as Japan, which fueled hopes for a negotiated solution.

In Brazil, the week is expected to be marked by volatility in domestic prices, which could open up opportunities for both the 2024/25 harvest and future negotiations for the next season. It's crucial that producers remain alert to market fluctuations and, especially, their production costs.