As South Texas farmers started putting corn seed into the ground last week in the subtropical region of the nation, a flurry of crop-related information started flying off news wires and trade publications that illustrate the uptick in producer concerns.
The production and marketing of the U.S. corn crop has particularly been spotlighted over the last couple of weeks, and at a time when most farmers are at a critical juncture in making plans of what and how much to plant.
While not all corn news has been bad news recently, several developments could make more than a few producers uneasy as they begin the process of preparing their fields for planting, especially in light of low corn prices. Last week, CNNMoney published a report warning farmers that Mexico, one of the top buyers of U.S. corn, hinted they might consider an upcoming Mexican bill in their legislature that would redirect corn buying efforts to Brazil and other trading partners instead of from U.S. suppliers.
Industry trade policy analysts indicate the news could mark the first sign of potential action by Mexican officials in response to President Donald Trump’s threat of border taxes and renegotiation of the North American Free Trade Agreement (NAFTA). The news was released during an anti-Trump protest in Mexico City, one of many public demonstrations expressing Mexico’s growing concern over Trump trade policies and the potential for a possible trade war among neighboring countries.
TROUBLING TRADE NEWS
The news is troubling at best for the U.S. corn industry. American farmers provided $2.4 billion in corn products to Mexico in 2015, the most recent year of available data, but that amount has been estimated to be greater in 2016. Whatever the latest figure, CNN noted that U.S. corn exports to Mexico following the 1994 NAFTA agreement exploded from $391 million in 1995 to well over $2 billion in recent years. With Mexico threatening to seek corn sales from Brazil and Argentina, U.S. corn producers could take a major hit on exports if additional foreign markets are not found early in the crop season.
The Mexican corn bill is said to be a clear sign of Mexico’s willingness to respond to Trump’s threats of a border tax to force them to pay for a wall on the border. He has threatened taxes on Mexican imports ranging from 20 percent to 35 percent as recently as last week.
The timing of such a development makes the task of planning this year’s corn crop a little more difficult. With balance sheet projections for the upcoming crop year being prepared, University of Illinois-Urbana agricultural economist Todd Hubbs warns of lower corn production leading to decreased ending stocks in 2017/18. The magnitude of reduced ending stocks provides important implications for corn prices moving through the marketing year.
REDUCED CORN ACREAGE
He says a reduction of about 3.5 million corn acres would leave the U.S. with an estimated total corn crop of about 91.5 million acres in 2017. How this might affect corn prices remains a variable and could be altered greatly depending on developments in agricultural trade with Mexico in 2017. But even the idea of fewer corn exports headed to Mexico this year and the ripple effect it might have for overall corn prices and demand is troubling to many producers. Without question, a Mexican threat to bar purchase of U.S. corn would mean lower prices for U.S. corn farmers at a time when prices are already near the bottom.
Last week UI-Urbana economist Keith Good warned that “U.S. food producers and shippers are trying to speed up exports to Mexico and line up alternative markets as concerns rise that this lucrative business could be at risk if clashes over trade and immigration between the Trump administration and Mexico City escalate.”
Reuters writers Tom Polansek and Mark Weinraub also reported last week that some U.S. producers of corn, soybean meal and distillers dried grains (DDGs), an ethanol byproduct, are trying to accelerate sales to Mexico because they are uncertain about the risk for new tariffs to disrupt trade.
UNCERTAINTY IN EXPORT MARKET
The Reuter’s piece noted that Mexico can’t unilaterally block U.S. corn exports without violating terms of the North American Free Trade Agreement, but it warns that the Trump administration has also indicated that they want to renegotiate the treaty, which adds overall uncertainty to the market.
And it’s not just corn producers who are getting a little nervous. Corn, soybeans, and dairy were the top three U.S. agricultural exports to Mexico in 2015. Also concerned is the U.S. beef cattle industry, which is also largely dependent on exports to Mexico for stability. Analysts say just about every U.S. agricultural product, in fact, could feel the weight of trade disagreements with Mexico over the coming year.
In the least, as Reuters points out, “Mexico’s attempts to diversify its supplies of corn could threaten a crucial market for U.S. farmers who are increasingly dependent on exports to unload record stockpiles that are depressing prices.”
While agricultural producers appear to be the target of potential legislation being considered in Mexico, it’s not the only concern that the U.S. has over trade problems with Mexico. The security of the U.S. government and other industries could also suffer.
Analysts warn the problems associated with trade and immigration disagreements with Mexico could have far-ranging implications; for example, Mexico has made known it may retaliate over trade negotiations by ceasing to co-operate on drug enforcement, migration control, and security and intelligence issues that are important to the U.S., according to a Mexican cabinet minister.
MUCH AT STAKE
“There is so much at stake for the interest of the U.S. as a country,” Mexico’s Economy Minister Ildefonso Guajardo reported last week. “We have been a great ally to fight problems with migration and narcotics [but] if at some point things become so badly managed in the [U.S.-Mexico] relationship, the incentives for the Mexican people to keep on co-operating in things that are at the heart of [U.S.] national-security issues will be diminished.”
Guajardo pointed out that Mexico has been extending the U.S. a service by stepping up security on their southern borders to prevent unwanted immigration from other Central and South American nations. While the U.S. is providing funds to help in that effort, Mexican officials point out that those security services help stem the flow of potential risks posed by terrorists hoping to slip into Mexico and later across the U.S. border undetected.
While farmers remain hopeful that trade issues with Mexico are not adversely affected by the administration’s rhetoric about forcing Mexico to pay for a border wall that few Americans seem to support, producer concerns gain traction each time negative news about exports of U.S. agricultural products to Mexico reaches the farm. In the least, such news is unsettling.