Commodity trade amidst volatility created by the trade war

The US imposition of unilateral tariffs to combat unfair practices of the European Union, China, and other major partners initiated a war where neither side increased the tax rates since November 2018, the time when Chinese President Xi and Trump met. 

In May 2019, Trump said he will impose additional taxes worth $325 billion items subjected to import duties that will cover items like computers, cell phones, footwear, clothing, and other consumer goods. Mostly the American tariffs were imposed on technology goods like:

• Autos

• Semiconductors

• And electronic components

• And building material

In response, China imposed tariffs of 25 percent on $50 billion worth of US imports and about 5 to10 percent on $60 billion worth of goods, and now, it has only $10 billion American imports left to levy. 

Canada imposed tariffs on US goods worth $12.6 billion that included:

1. Coffee

2. Ketchup

3. Steel

4. And aluminum

And there are other restrictions on American imports imposed by Mexico and the EU. 

Soft Commodities hit by trade issues 

Soft commodities are traded in spot and futures where the products can be bought or sold immediately, and investors can create the spot price for buy or sell orders. The price may change immediately in the liquid markets as new prices enter the marketplace. 

In such trades, people deal with contracts to sell or buy at a specific price and traders roll over their positions or close early to gain profits. 

Commodities can be traded in futures where the greater potential of fluctuations and risks is present, and large fluctuations in price can cause difficulties for the traders to predict the market movement.

Traders can hold positions as long as they desire as spot positions have no expiry and sometimes, it is conducted with the help of a COD where the difference in the price of the asset between the start and finish makes the contract. 

There are many advantages where traders can get exposure to such markets without buying in shares, ETFs, or futures.  

Some of the commodities like coffee and orange juice futures have tumbled to multi-year lows amidst oversupply and low demand in both the commodities. Wholesale coffee price is at the lowest since 2005, almost half of the price in 2016. 

The supplies are growing as the grinders are lowering the price of processing and this led to unrestricted production. There are some global regions where coffee faced negative promotion. 

Switzerland claimed the beverage has no health benefits and should not be stockpiled in thousands or tons creating resistance among heavy buyers. Futures for the July contracts were at 90.60 a pound, in the last week in New York and it is almost at a 14 year low. 

It was also hit by lowering Brazilian currency where Brazil is one of the key producers, causing a price decline, and the similar trends in the world markets led to a decline in coffee, sugar, and orange price.