The US government has announced that the tariff investigation for the farming sector will take several weeks to finalize. Right now, the focus is on investigating the semiconductor industry. The president is in Alaska for the Russia/Ukraine summit on Friday.

Impact on Agriculture

The delay in farming tariff discussions is a short-term win for agricultural commodities. With no immediate threat, we expect the high premiums on put options for futures like soybeans and corn to drop. This opens the door to sell some protection or explore short-term bullish strategies. In 2018, soybean futures fell more than 20% when tariff news broke, so this delay is a big relief for farmers. We anticipate a more stable trading environment for agricultural ETFs like DBA over the next few weeks. The market had been preparing for a worst-case scenario that now looks less likely before September. With the semiconductor industry taking priority, we expect tech stocks to see more volatility. The VanEck Semiconductor ETF (SMH) has risen nearly 35% this year, making it susceptible to negative news from the government investigation. Buying protective puts on the SMH or individual chip companies might be a smart way to protect against a sudden downturn.

Government Focus Shift

The government’s change in focus is creating noticeable differences in sector risk. We expect implied volatility on many agricultural options to decrease, while the volatility for tech stocks, indicated by the VXN index, has already risen to 25 this week. Traders should adjust their positions to match this new situation. The president’s attention on the Russia/Ukraine summit this Friday adds more uncertainty to the market. Geopolitical events are unpredictable and can lead to significant market movements, causing the VIX fear gauge to rise. The VIX closed above 18 yesterday, its highest level in over a month, indicating growing worry. This suggests that traders might want to use index options on the SPY to protect themselves against any unwelcome surprises from the summit. We’re also paying close attention to energy markets, as European natural gas futures have been fluctuating around €45 per megawatt-hour ahead of the meeting. Any escalation could lead to a sharp increase in energy prices. Create your live VT Markets account and start trading now.

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