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Your Pro Farmer newsletter is now available... There was a lot of back and forth on trade policy over the past week, with President Donald Trump initially saying 25% tariffs would go into effect Feb. 1 on imports from Mexico and Canada – and then delaying action for 30 days for both countries. An additional 10% tariffs on Chinese imports went into effect Feb. 4, with Beijing delaying its targeted retaliation until Feb. 10 in an apparent willingness to negotiate. The only thing certain about Trump’s trade policy is uncertainty. We cover all the movement, along with analysis of the situation on News page 4. Needed rains arrived in portions of Argentina, providing temporary relief from crop stress, though more will be required to avoid additional yield losses. In Brazil, soybean harvest and safrinha corn planting remain delayed. The U.S. cattle herd continues to shrink and there are no signs of expansion, but cattle futures faced heavy long liquidation last week. With a huge jump expected in government payments this year, USDA forecasts an improvement in farm income. We cover all of these items and much more in this week’s newsletter, which you can access here.
Trump says he will announce reciprocal tariffs next week... President Donald Trump said he plans to unveil reciprocal tariffs next week in a major escalation of his trade war with U.S. trading partners. Trump made the announcement during a meeting with visiting Japanese Prime Minister Shigeru Ishiba on Friday and said the action would affect “everyone,” without specifying exactly what measures he plans to take. Later on Friday, Trump suggested the reciprocal tariffs could come in lieu of the 10% universal import duty plan at the center of his economic message during the campaign. He said he was inclined to do “mostly” reciprocal tariffs over global import duties. Trump said tariffs targeting automobiles, in particular, were under consideration. Such tariffs would likely target the European Union, as Trump has consistently criticized the fact the bloc charges a 10% tariff on U.S. vehicles while the United States only charges a 2.5% tariff on EU vehicles.
“I’ll be announcing that next week — on reciprocal trade — so that we’re treated evenly with other countries. We don’t want any more or any less,” Trump said. He plans to hold a meeting on the issue Monday or Tuesday. “I think that’s the only fair way to do it. That way, nobody’s hurt. They charge us. We charge them. It’s the same thing,” Trump said. “I seem to be going in that line as opposed to a flat fee tariff.”
Ishiba declined to answer a question about whether Japan would retaliate if the U.S. imposes tariffs.
Trump also said he would maintain the duty-free exception for low-value packages coming from China until “adequate systems are in place to fully and expediently process and collect tariff revenue.” Under the new order, the U.S. will maintain the de minimis exception until the secretary of Commerce notifies Trump that a system to impose the taxes are in place.
As part of a new 10% tariff on China, Trump revoked a “de minimis” rule that previously allowed small packages under $800 to enter the US duty free. The exception enabled the rapid growth of online retailers like Shein and PDD Holdings Inc.’s Temu, who could ship low-cost goods directly to US consumers without paying tariffs.
Rains save Argentine crops from ‘the inferno’... Rainfall earlier this week provided much-needed relief from dry conditions for more than 60% of Argentina’s current planted soybean crop, the Rosario Grain Exchange said, along with the corn crop. The exchange described the rains as delivering the country’s main crop “from the inferno,” but noted “relief did not reach everyone.”
Additional rains are forecast for early next week and expected to cover a larger area, the exchange said.
Snow to protect U.S. winter wheat... A weather pattern setting up for next week will lead to multiple rounds of rain, snow, sleet and some freezing rain from the Central Plains into the Midwest, providing protection from arctic for the winter wheat crop. World Weather Inc. says most of the coldest weather will be in the Northern and Central Plains, where snow will protect crops from any damage. No winterkill or significant crop damage is expected. The lower Midwest and Southern Plains won’t be as cold, leading to minimal concerns with winterkill damage.
Dramatic slowdown in jobs growth... The U.S. economy added 143,000 non-farm payrolls in January, down sharply from the upwardly revised figure of 307,000 for December. Combined November and December payrolls were revised up 100,000 jobs given additional data and annual benchmarking. Markets continued to reflect the next Fed rate cut coming in June.
Consumer sentiment declines again in February... Consumer sentiment fell for the second straight month in February, dropping about 5% to the lowest level since July 2024, based on preliminary data from the University of Michigan Surveys of Consumers. At that level, consumer sentiment would be down 11.8% from February 2024.
All five index components deteriorated this month, led by a 12% slide in buying conditions for durables, in part due to a perception that it may be too late to avoid the negative impact of tariff policy. Expectations for personal finances sank about 6% from last month, falling to the lowest value since October 2023. Many consumers appear worried that high inflation will return within the next year.
Year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, the highest reading since November 2023, the second straight month with a large increase. This was only the fifth time in 14 years the survey saw such a large one-month rise (one percentage point or more) in year-ahead inflation expectations. Long-run inflation expectations ticked up from 3.2% last month to 3.3%.
Budget battle heats up... Next week is shaping up to be a high-stakes showdown over competing budget plans. House Republicans, led by Speaker Mike Johnson (R-La.), are scrambling to finalize their one-bill proposal, with details expected Monday. Meanwhile, Senate Budget Chair Lindsey Graham (R-S.C.) is pushing ahead with a two-bill approach, with key GOP senators set to discuss the strategy with President Donald Trump at Mar-a-Lago this evening. Graham’s budget resolution includes $150 billion for defense, another $150 billion for border security and energy policy changes. This amount would be fully offset. House proposals aim to extend the 2017 tax cuts. One of the biggest sticking points for House Republicans has been the level of spending cuts. House GOP leadership had initially proposed $500 billion to $1 trillion, but conservative hardliners have been pushing for at least $2 trillion or more in spending reductions to maintain budget neutrality. There reportedly is consensus that they will need to cut more than $1 trillion in order to get conservative hardliners on board. House Budget Committee action is tentatively set for Tuesday but could slip later in the week.
Of note: Republicans agree that Trump’s 2017 tax cuts should be permanently extended. Trump also laid out several other tax priorities he wants to see in the package, including eliminating taxes on tips, Social Security benefits and overtime pay. And Trump threw in new tax priorities like getting rid of sports team owners’ tax breaks.
Trump told Republican lawmakers he wants to eliminate the carried interest tax break, a long-standing benefit for private equity fund managers and venture capitalists. His goal is to use the revenue from this change to help offset a multi-trillion-dollar tax cut that Republicans aim to pass before the end of the year. The carried interest loophole allows fund managers to pay lower capital gains tax rates (20%) on their earnings rather than the higher income tax rate (37%). Given past Republican resistance, it remains unclear whether he will succeed this time.