How US agriculture market is approaching tariffs and a potential trade war

While a 10% tariff on Chinese goods did go into effect Tuesday – and was met by targeted retaliatory tariffs on some U.S. goods – delays to President Trump’s 25% tariffs on Canadian and Mexican goods were seen as a sign of Washington’s willingness to negotiate, and the potential for agriculture to sidestep any negative impact to a farm economy that saw declining incomes last year.

Grain and livestock prices recovered from initial losses on Monday when Trump confirmed that the U.S. and Mexico had agreed to a 30-day pause in any tariff action – with a similar pause between the U.S. and Canada following later in the day. Traders and farmers hope that the administration is using tariff threats as leverage in trade negotiations, as opposed to following through with a major disruption to agricultural trade.

“I think after last time, people learned their lesson," said Terry Reilly, head grains and oilseeds analyst with Marex in Chicago. “I think the trade is well braced for this."

Grain futures trading in Chicago settled higher Tuesday, continuing the positive momentum that grain futures have all had since the start of the year, with corn rising 8%, soybeans up 6%, and wheat up 5% since Jan. 1.

The trade war between the U.S. and China that raged during Trump’s first term cut into U.S. exports, particularly for soybeans – with export sales of U.S. soybeans to top buyer China falling by over 60% from 2017 to 2019, according to data from the Department of Agriculture.

There were many stops and starts in the negotiations leading to a partial trade deal between the two nations in late 2019, which called for increased purchasing of U.S. exports by China.

This time, traders and analysts appear ready for the potential chaos that may ensue in negotiations between both sides. Grain traders are moving carefully in recent sessions, limiting the amount of fluctuation seen in futures prices.

“It appears that the trade is reluctant to price in a tariff premium or discount given the speed of developments," said Jake Hanley, managing director and senior portfolio specialist with Burlington, Vt.-based Teucrium Trading LLC.

The fluid nature of the news coming out of the White House has traders glued to news coverage and Trump’s Truth Social account, where he provided confirmation about Mexican and Canadian tariffs being delayed.

In the case of China, retaliatory tariffs didn’t target U.S. agriculture, outside of agricultural equipment coming out of the country. The measure focused on other mostly energy commodities, including oil, gas and coal.

Farmers nationwide have become more positive about their chances to have a profitable year in 2025 and that a trade war can be avoided. In a survey conducted jointly by Purdue University and the CME Group and released this month, a growing percentage of farmers say that they don’t believe a new trade war is coming – with 29% of the population calling it ‘unlikely’ or ‘very unlikely’, up 8 points from the previous month.

Meanwhile, 40% see a potential trade war as ‘likely’ or ‘very likely’, but that’s down 8 points from the previous month.

“Recent improvements in crop and livestock prices have provided a boost to farmers’ current sentiment," said Michael Langemeier, the principal investigator for the barometer and a professor at Purdue’s school for Commercial Agriculture, in the release.

Write to Kirk Maltais at kirk.maltais@wsj.com