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Corn+Soybean Digest

NAFTA's Working

Back when the North American Free Trade Agreement (NAFTA) was being debated, critics squealed like pigs under a gate.

But for U.S. farmers, NAFTA is working like a charm. Canada, long a strong trading partner, has increased imports steadily since the agreement took effect and last year bypassed Japan as the chief buyer of U.S. ag products.

Trade with our northern neighbor hit a slight snag when U.S. borders were closed to Canadian cattle due to a bovine spongiform encephalitis (BSE) outbreak earlier this year. But sales to Canada hit $8.35 billion in the first 11 months of fiscal year 2003, up 5.95% from the same period a year ago. With no new BSE infections reported, things are getting back to normal on the cattle and beef products front, too.

Mexico is also a real Cinderella story, as imports from the U.S. have climbed by nearly $2 billion during NAFTA's tenure. Last year, Mexico ranked No. 1 as a buyer of U.S. cotton and second only to Japan in purchases of U.S. corn. Our neighbors to the south are now our fourth-biggest soybean customer and are increasing bean imports steadily.

“Our main foreign buyers are now Canada, Japan and Mexico — in that order,” says Mark Hitt, administrator of international marketing for the Missouri Department of Agriculture. He notes that Mexico imported $7 billion worth in the 11 months ending Aug. 31. Compared with the same period a year earlier, that's an increase of 8.62%.

“Day by day, Mexico's demand for soybeans and soy products is increasing,” says Oscar Gonzalez, U.S. trade representative stationed in Mexico. “Mexico needs a growing volume of soybeans for both animal feed and human food, and virtually all of it comes from the U.S.”

U.S. producers now supply 92% of whole soybeans and 100% of the soybean meal imported by Mexico.

“We (the U.S.) set records for exports to Mexico of most farm products in 2001,” says Hitt. “And we broke that record again in 2002.”

New import regulations in China caused a 20% cutback in U.S. soybean exports to that Asian country this past year. But increased exports to Western Hemisphere buyers more than made up for that decline.

There are several reasons for Mexico's burgeoning demand for U.S. soybeans and soybean products:

  • Since its drastic devaluation in 1995, the Mexican peso has remained fairly stable in relation to the U.S. dollar.

  • Never a big soybean producer, Mexico suffered an infestation of white fly in the '90s, followed by four straight years of drought. Mexican soybean acreage dropped from 850,000 to 210,000 acres.

  • Prices were lower for most U.S. commodities, compared with those during NAFTA's early years. Stronger south-of-the-border demand has been a boon for soybean growers in the Midsouth and southern Corn Belt, primarily because of overland transportation.

Kansas City Southern Railways has bought a 49% interest in TFM railroad (the major Mexican railway), with a major hub at Laredo, TX. Several truckers now specialize in hauling Mexico-bound freight: U.S. drivers unhook semi-trailers at the port of entry, where Mexican truckers are waiting.

In fact, overland freight is cheaper and faster than products shipped across the Gulf of Mexico. It's a longer over-the-road haul from Progreso, Mexico (a major Gulf coast port), to processors in central Mexico than it is from Brownsville or Laredo, TX. In the last year for which records are available, 1,028,000 mt landed at Mexico's eastern ports, while 1,381,000 mt crossed at ports of entry in Texas alone.

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