Trade Winds Shift, Markets Hold Steady

Markets showed a steely resolve in the face of looming trade disputes with our greatest trading partners.

This week, President Trump announced that he was going to reinstate tariffs on steel and aluminum imports from Canada, Mexico, and the European Union. These allies swiftly responded with counter-tariffs against U.S. exports like steel, whiskey, motorcycles, and fruits, stoking fears of a worsening trade war.

Initially, stock market futures, like the S&P 500 and Dow Jones, tumbled in the United States, as export losses and higher-priced steel and aluminum could hurt U.S. manufacturers. However, share prices rebounded on Friday after a better-than-expected jobs report showed continued strong jobs growth and an unemployment rate of 3.8%, the lowest in 18 years.

Meanwhile, soybean meal prices were eviscerated as agricultural exporters felt exposed in the looming trade war, falling to a two-month low on Friday near $373 per metric ton.

**Cotton Puffs Up

Cotton prices exploded to a four-year high this week, trading over 96 cents per pound on Tuesday.

Prices are being boosted as farmers across the South are struggling with weather issues. In the Southeast, heavy rains are battering fields, while drought in Texas and Oklahoma could damage the crop there.

These high prices have inspired farmers to increase cotton acreage to the highest level in seven years, planting about 13.5 million acres this season. Many farmers, especially in Oklahoma and Kansas, are planting cotton instead of lower-value crops like wheat and soybeans.

Cotton was the most valuable American export from 1803 to 1937, earning the title “King Cotton” during that period. It continues to be a major agricultural export, with over 70% of U.S. cotton being sent abroad, primarily to garment-producing countries like Honduras, Mexico, the Dominican Republic, and China. Thus far, cotton has largely avoided trade war threats, but it would be an extremely susceptible market if China or Mexico retaliated against U.S. cotton.

Additionally, the global market is concerned that China is sitting on a massive stockpile of cotton that it could unleash, potentially collapsing prices, a fear that keeps cotton farmers and traders on edge around the world.