Inside Washington: What happens the morning after the election?

A Trump victory could create uncertainty in commodity markets, analysts said.

This year’s presidential election between Republican nominee Donald Trump and Democrat nominee Hillary Clinton has many concerned about the outcome, but for agriculture, it could have an impact on commodity prices as well.

According to Bryce Knorr, Farm Futures senior grain market analyst, conventional wisdom says financial markets will react negatively to a Trump win, which is why the volatility index, or VIX, for the stock market is up, along with gold as the safe haven of choice. “Markets don’t like uncertainty, and the uncertainty of what Trump would do is about the ultimate uncertainty,” he said.

Julian Jessop, head of commodities research at Capital Economics, said there can be little doubt that global business and investor confidence would suffer in the wake of a Trump win or even a disputed victory for Clinton. “This is clear from the heightened nervousness in the markets as opinion polls have suggested that Trump has a much better chance of victory than looked likely a few weeks ago,” Jessop said.

Once the dust settles, the longer-term implications for commodities under a Trump win would depend on what he actually does in office, what this means for growth, inflation and interest rates and any sector-specific impacts. “These implications could still go either way, although we suspect that the net effects would be smaller than most might anticipate,” Jessop said.

“On the upside, the resulting uncertainty means that the (Federeal Reserve) would be likely to keep U.S. interest rates low for longer, and the dollar would fall further against other major currencies. This would most obviously help the price of gold but could support the prices of all commodities in U.S. dollar terms,” he explained.

Jessop added that agricultural commodities might benefit the least in this respect, as the dollar would probably strengthen against the currencies of key producers in emerging markets, encouraging them to boost exports.

Britain's vote to leave the European Union ("Brexit") offers somewhat of a template on what can happen with a Trump win. The market has already built in anticipation of the uncertainty of a Trump victory. However, Jessop said, “It is possible that Trump would quickly moderate his more radical pre-election positions.” As with the Brexit vote, little change would be immediate. Trump would not become president until January, and even then he may struggle to get his agenda through a gridlocked Congress.

Either candidate can be expected to pursue the politics of their respective parties once the dust settles, Knorr said. “The (Republicans) would have a much greater chance of succeeding at that. Presumably, if Trump wins, that means they hang on to both the House and Senate. Senate isn’t likely to be filibuster-proof, but they could always use the nuclear option on that.”

Jessop said there is some concern over the prospect of a further lurch towards protectionism under a Trump presidency.  Jessop is skeptical that Trump would deliver in full on his threats to impose punitive tariffs on imports from Mexico and China, “which would do plenty of harm to businesses and consumers in the U.S., too.”

“The thing to remember about the markets, especially for crops, is how global they are,” Knorr noted. “Markets are supply driven right now and will be until there’s either explosive world growth or a serious global deflation that reduces prices and demand. Soybean exports will depend on Chinese growth, but corn and wheat increasingly require weather problems around the world to generate rallies.”

Knorr added that presidents don’t do much with agriculture these days, and there’s evidence that they can’t really do much about the economy, either, despite all the talk. “They can start wars and respond to crises, but they can’t stop the business cycle,” he said.

Rural vote leans for Trump

Earlier this summer, Farm Futures surveyed producers and found a strong leaning towards Trump. Trump led Clinton 73% to 10% in the survey, but “none of the above” came in a strong third place at 7% of growers. Libertarian Gary Johnson was at 4%, about the same as those who said they do not intend to vote. Another 2% selected a write-in candidate, while Green Party nominee Jill Stein was preferred by only one respondent.

Some 55% of those surveyed in the latest "Agri-Pulse Farm & Ranch Poll" said they’ll support Trump, while 18% are throwing their support behind Clinton. Only 2% plan to vote for Johnson and just 1% for Stein.

Trump has almost twice as much support as Clinton in rural areas, according to a DTN poll. This poll showed Trump leading Clinton at 46% to 24%, followed by Johnson with 7% and Stein with 3%.

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