Will policy match the rhetoric?

It is going to be hard to know what comes next in terms of the market. The dust seems to have settled quickly, with clarity now required between the rhetoric and actual policy.

One immediate response has been seen in the canola market. Trump has indicated he would ban (or heavily tariff) Chinese-used cooking oil imports. Used cooking oil (UCO) is used as a base material for biodiesel production. The EU27 uses something like 130,000 barrels/day of UCO and the US has been building its consumption to be around 40,000 barrels. While demand was seen to be outstripping supply, it remains a valuable resource to make use of an otherwise waste material. All this being said, Canadian canola futures surged as it is expected that Canadian exports over the border of both seed and canola oil will be the big beneficiaries.

This could be beneficial to us in Australia. With an already large domestic crush program and now the potential for further exports into the US, it could reduce the reach of Canadian canola by reducing their exportable surplus.

The new administration is thought to be rewarding political supporters with key positions in the Government. The one that bears watching is the possible appointment of RFK Jr – the breakaway Democrat – to the role of public health, which includes the USDA. He is known for – among other things – a dislike of ‘corporate farms’, agrochemicals, seed oils and WiFi.

Again, there is a yawning gulf between rhetoric and policy, but anything that reduces US farming efficiency and productivity could have a wider effect on global supplies and trade flows.

After some good weeks on the export front, Chinese demand for US goods will be closely monitored. Trump’s promise to leverage a 60% duty on Chinese imports is unlikely to go unmatched. China’s purchases of US soybeans are already running at multi-year lows and there is a view that there is still unmet demand that needs to be filled.

The US Fed cut interest rates last night by 25 basis points. This resulted in a rally in the AUD by nearly 1c as our own Reserve indicated that interest rates might be on hold for some time yet.