At a Glance
- Trade continuation important, other issues linger.
Farm country breathed a sigh of relief when the U.S., Mexico and Canada came to an agreement on agricultural trade between the three countries.
The U.S.-Mexico-Canada Agreement, or USMCA as it is known, left intact most of the provisions for grain and pork producers in NAFTA, and made some changes for dairy farmers. Additionally, new language regarding agricultural technology that didn’t exist at the time of the original NAFTA agreement was included.
“The most important part for us was the continuity of it all,” says Dave Salmonsen, senior director for congressional relations at the American Farm Bureau. “All that talk of withdrawal and such was always quite unsettling to everybody.”
Agricultural trade under NAFTA boomed to almost $40 billion to Canada and Mexico currently, from $8 billion in 1993 . For soybeans, sales to Mexico by 2017 were 2.85 million bushels, up from 1.758 million in 1993, while Canadian sales fluctuated during the time but by 2017 were around 251,000 bushels. For pork, sales to Mexico jumped to 1.8 billion pounds by 2017, from 98 million pounds in 1993. Sales to Canada rose to 530 million pounds from 36 million.
Kevin Scott, soybean farmer in southeast South Dakota and a director for the American Soybean Association, says Mexico is the number two destination for U.S. soybeans, so the new agreement is critical.
“It’s good for farmers in general and we are very supportive of the new agreements,” Scott says.
“An Unbelievably Important Market”
Craig Morris, vice president of marketing for the National Pork Board, says the original agreement “was a very good deal” for pork since there were zero tariffs between Canada and Mexico. Canada is a two-way market for the U.S., but Mexico, “is an unbelievably important market to the United States for pork,” he adds.
Forty percent of U.S. fresh pork legs go to Mexico, and the U.S. is the only country who can ship a sizeable amount of chilled pork to the country, says Morris.
“NAFTA was a great deal. USMCA really just keeps pork in the exact same ballgame that we were on with NAFTA,” he says.
A Sign for Global Trade?
John Price, who grows soybeans, corn, wheat and finishes pigs on his farm in Hartford City, Indiana, says he hopes the new agreement struck with Canada and Mexico will be a signal to other countries that the U.S. is willing to negotiate.
“If everyone sticks together, maybe we can put more pressure on China to come to the table and negotiate and get things worked out with them,” Price says.
Salmonsen said early next year negotiations with Japan and the European Union are expected to start. However, Chinese trade is a separate issue. The U.S. and China are in a trade spat, with the two countries having enacted retaliatory tariffs on a range of products, with China putting heavy tariffs on U.S. soybeans and pork products, which have weighed on prices of those two commodities.
It’s not clear where the situation stands with China. “We’d like to see that situation deescalate and get taken care of,” Salmonsen says.
Steel Ripple Effects
Although the USMCA is a bright spot for agriculture, the steel and aluminum tariffs the U.S. levied on its trading partners, including Canada and Mexico, could overshadow this good news. Mexico put a two-stage set of tariffs on U.S. pork, totaling 20 percent. There are hopes the metal tariffs will be sunsetted.
“We’re still feeling the effects of that… especially on a value basis,” Morris says, noting the tariffs have affected 2018 export levels.
The ripple effects of the steel and aluminum tariffs have on farmers is frustrating, Scott says. “We as producers are pretty concerned that non-ag issues can affect our trade in such a huge way and it did.”
Renewed Ag Confidence
Sentiment in farm country had fallen, as measured by the Purdue University/CME Group Ag Economy Barometer. In September, the sentiment index fell to a reading of 114, its lowest reading since October 2016. The survey’s authors, James Mintert and Michael Langemeier, said one of the reasons for the drop stemmed from concerns about the impact of trade conflicts with major agricultural trading partners, especially China.
A new agreement with Mexico and Canada could spark new confidence. Mike Zuzolo, president of Global Commodity Analytics and Consulting, said farmers he’s talked to are pleased with USMCA.
“The sentiment of the trade has improved because we have NAFTA regenerated. Now we have our closest trading partners, logistically, back intact and we don’t have to worry so much about South American supplies coming up this way,” Zuzolo says, adding the trade deal gives him more confidence headed into 2019 that the worst is behind us in terms of agriculture being the front-line on U.S.-led trade sanctions.