China’s DeepSeek AI Triggers Selling Pressure in Grain Futures. What Will It Take for Prices to Climb Again?

Grain futures markets were facing selling pressure Monday morning as a risk-off mentality took hold in the general marketplace. The U.S. stock market sold off sharply following the surprise weekend news that China is apparently seriously challenging or overtaking U.S. leadership in the development of artificial intelligence. A small and relatively new Chinese company called DeepSeek claims it has produced a large language model that rivals many of the leading U.S. models -- at a fraction of the cost. 

Traders and investors consider commodity futures markets as risk assets, so when risk aversion is elevated, commodity market bulls tend to head for the sidelines. Such is the case in the grain futures markets early this week. 

When Will Grain Market Bulls Reappear?

How long grain market bulls remain in hiding very likely depends on the near-term price action in the U.S. stock indices. Bloomberg Monday said: “The sudden emergence of DeepSeek calls into question the underpinnings of the rally that’s added $15 trillion to the value of Nasdaq 100 Index companies since the end of 2022.” Reads a Barron’s headline Monday: “DeepSeek threatens to burst AI bubble.”

Big tech companies start reporting their fourth-quarter earnings this week. Profits were already expected to come in at the lowest levels in almost two years. And that was before the weekend DeepSeek news.

Grain traders will continue to keep one eye on the U.S. stock indices. If they continue to sell off, then grain futures markets will likely do same — or at least see their recent price rallies stall out and turn into choppy and sideways trading.

Another Potential China Negative for Grain Markets

Reports Monday said China’s economy entered 2025 on a weak note, prompting its central bank to inject record cash into China’s financial system this month. China’s non-manufacturing purchasing managers index (PMI) came in below market expectations and below last month’s reading. The manufacturing PMI also fell back into contraction territory. 

When China’s economy, the world’s second-largest and a voracious consumer of raw commodities, starts to sneeze, the grain markets get a cold. If the trajectory of China economic data continues to show weakness, it’s likely the fledgling price uptrends in the corn (ZCH25) and soybean (ZSH25) markets will at the least be limited, or at most stall out and reverse. Grain traders need to monitor upcoming China economic data extra closely in the coming weeks.

More Trump Tariff Worries for Grain Bulls

President Donald Trump over the weekend threatened and then quickly pulled U.S. tariffs on Colombia after the two countries reached a deal on deported migrants. Colombia had initially refused to allow two U.S. jets loaded with Columbian migrants to land on its soil but changed its mind after the Trump tariff and other U.S. sanction threats. The weekend actions only highlighted to grain traders that the Trump administration means business when it comes to U.S. foreign policy. New U.S. tariffs on its trading partners would be a bearish omen for grain futures.

Grain Traders Will Eye U.S. Dollar Index Reaction to FOMC

The U.S. data point for this week sees the Federal Reserve widely expected to hold interest rates steady at the Federal Open Market Committee (FOMC) meeting that begins Tuesday morning and ends Wednesday afternoon with a statement and press conference from Fed Chair Jerome Powell. Grain traders will be especially eyeing the reaction of the U.S. Dollar Index (DXH25) to the FOMC results. The USDX Monday hit a five-week low and has been trending down for more than two weeks. That’s a bullish element for the grain markets, as it makes U.S. grain less expensive to purchase in non-U.S. currency on the world trade markets.  A more hawkish tone on monetary policy by the FOMC this week would likely put the brakes on the recent depreciation of the greenback.