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First signs of trade trouble with Mexico surface

DFP Exports Trade
Early feedback indicates a slowing of exports so far this year may be the result of faltering trust between trading partners on both sides of the border, uncertainties over faltering trade relations clouding the future.

Ever since presidential candidate Donald Trump called the North American Free Trade Agreement “the worst deal ever” during multiple campaign speeches, U.S. agriculture producers and support groups have been concerned that potential changes in the current trade agreement with Mexico and Canada could represent a significant threat to their farm and ranch operations.

Farmers are being told NAFTA renegotiation will be a positive development. A number of Congressional lawmakers, newly appointed Agriculture Secretary Sonny Perdue, and U.S. Secretary of Commerce Wilbur Ross all argued renegotiation efforts for NAFTA would leave farmers with a more modern and trustworthy agreement.

But early feedback indicates a slowing of exports so far this year may be the result of faltering trust between trading partners on both sides of the border, uncertainties over faltering trade relations clouding the future.

Take a look at the numbers.

For the first time in four years, in the first four months of the year U.S. exports of soybean meal used to feed Mexican livestock and poultry has fallen by 15 percent. And U.S. chicken meat exports to Mexico dropped 11-percent over the same period, the biggest decline since 2003.  U.S. corn exports have also dropped, by an unexpected 6-percent. As most farmers can tell you, Mexico is the largest international buyer of U.S. corn, soybeans and poultry, the very foundation of agriculture trade headed across the border.

The Wall Street Journal largely attributes this decline in exports to what they term the growing unease of Mexican buyers who fear that renegotiation of NAFTA will not take place without complications. The Journal article illustrates how many Mexican companies are turning to other suppliers, like Brazil, for replacements to U.S. agricultural products in the short term, at least until after NAFTA renegotiation efforts prove to be either a true success or a terrible failure.

What may be more surprising is that these same buyers in Mexico are paying more for the same product they were buying from U.S. exporters, knowing full well it was costing them more money. A spokesman for the Mexico livestock industry called paying a higher prices for Brazilian corn "an investment" in the event a trade disagreement with the U.S. becomes a stumbling block during NAFTA meetings.

If Mexico's trend to buy food and other agricultural products from other sellers continues in the months ahead, it could have a major effect not only on prices of U.S. goods, but stocks as well. As corn or soybeans that were grown for the Mexican market accumulate in storage facilities after this growing season, analysts warn the world market could get flooded with low cost corn and beans, forcing prices even lower.

Analysts say Mexico's recent purchase of South American corn meal probably represent an emerging strategy by Mexican trade officials who are intent on sending a clear message to the Trump administration: “Mexico is not going to roll over” on trade disputes.

Raúl Urteaga Trani, general coordinator for international affairs for Mexico’s Secretariat of Agriculture, organized an effort with Mexican companies to forge ahead with plans to establish new trading partners prior to NAFTA talks with the U.S. and Canada.

Those efforts were directly responsible for nearly two dozen major Mexican buyers who participated in a number trade missions to South American nations recently in an effort to prepare for a possible disruption in trade with the U.S., especially if President Trump decides to withdraw from the agreement as he has threatened to do.

“We needed to send a clear message to Washington that in Mexico we are not sitting still and waiting for NAFTA talks but are moving forward to make certain we have an uninterrupted supply of the agricultural products we need,” Urteaga said.

Many U.S. farmers have been willing to remain patient and allow enough time for a renegotiating platform to develop, resulting in positive reform and modernization as promised. But, in states like Texas, where Mexico represents the state's largest international buyer, concerns over NAFTA negotiations run high.

Texas’ exports to Mexico totaled $833.5 million in 2016, of which $270.8 million were animal products and $562.8 million were plant products. The top four Texas agricultural exports to Mexico were beef and veal, valued at $141.7 million; cotton, $125.4 million; sweeteners, $64.5 million; and corn, $62.4 million.

In a report from the Center for North American Studies at Texas A&M University, Dr. Luis Ribera noted the economic impact of U.S. agricultural exports to Canada and Mexico totaled $107.8 billion and 509,332 jobs were created within the calendar year as a result. Ribera warned that any disruption of trade between the NAFTA partners in the near future could be troubling for U.S. agricultural producers, especially in Texas.

Jeff Mosely, CEO of Texas Association of Business and a cornerstone partner in the newly formed Texas-Mexico Trade Coalition, said Texas has more to gain, or potentially more to lose, with the renegotiation of NAFTA. The Coalition serves a dual purpose, first by offering a strong voice for the business community and industries of Texas who participate and benefit from commerce made possible by NAFTA.

Secondly, the group believes it serves as a guardian for the 400,000-plus jobs in Texas that developed as a result of trading opportunities and still depend upon successful, fair and open trade policy between the three member nations.

“We want to make sure Texas voices are heard in the process of crafting a draft document together, because we know Texas has the most to gain and the most to lose in this process,” Moseley said. “We want to make sure that the energy sector is represented in this document as well. Since NAFTA was first adopted, Mexico amended their constitution to allow Texans to go in and help develop the country's energy assets...and we want to work toward a way to get goods to the market by enhancing the border crossings to become more efficient, safe and capable of move goods across the border," Moseley said.

It is necessary that others understand the importance of international trade between Texas and Mexico and what that means to both the state and national economies, he said.

“It's really appropriate that we take a look at what the next generation of trade document looks like and how it better serves Texas and Mexico.”

The same could be said for corn producers in Iowa. In a recent editorial in the Des Moines Register, it was noted that the "friction created by Trump over trade with Mexico has cut into sales for U.S. farmers and agricultural companies." The editorial charged that Iowa stands to lose both jobs and money if NAFTA renegotiations result in less profitable trade with Mexico or in the form of penalties, tariffs or border taxes that could spark a trade war.

Hopes remain high among farmers that a "no harm" approach to trade renegotiating may help to bring about an improved agreement that will offer benefits and protection for U.S. and Mexico agricultural and business interests.

But, like patiently waiting in the quiet of the storm, worry raises its ugly head from the shadows, and the restless mind seems to sense an anxious anticipation in the air as the clock slowly counts down the days before farmers find out whether trade issues become the next big stumbling block for agriculture.

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