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Mexico Prepared to Source South American Corn
The Mexican government would seek other agricultural suppliers in the case that President Trump fulfills his promise of imposing a major border tax of 20% on Mexican products in order to pay for a border wall.
This could mean a significant lost of market for U.S. farmers, including beef, poultry, hog, corn, soybeans, rice, and others.
“I warn you: The openness for grain and agricultural products for Brazil will eat the market that you have today in Mexico,” said Ildefonso Guajardo, Mexico’s economy secretary in a meeting this week with Stephen Bannon, Peter Navarro, and Jared Kushner, all Trump’s top aides, according to the Mexican press.
Throughout last year, Mexico has already sought to negotiate several trade agreements with both South American countries, but nothing concrete has been announced yet. According to Mike Zuzolo, president of Global Analytics & Consulting, there already has been market anxiety about what is going to happen on this issue and with cattle. Feed-meal traders from the south of the border are already trying to anticipate major decisions.
“It would all depend on the size of the second corn crop in Brazil. If Brazil has sufficient volume, it would be able to sell corn from $25 to $35 per ton (into Mexico), and there will be significant changes in the market. It’s all about the weather in Mato Grosso in the coming months,” Zuzolo predicted in a call with Agriculture.com.
On the other hand, it is unknown when a possible border tax between both countries woud be imposed, though it most likely that it would come after the third quarter of the year of even in 2018.
Mexico imports nearly 11 metric tons of yellow corn - all of it from the U.S.
In the view of Mexican analyst Alfonso García Araneda, general director of Gamaa Derivates in Mexico City, it would be harmful for both countries if a border tax is imposed. He highlights that corn and soybean purchases in Mexico are made by U.S.-based corporations such as Archer Daniels Midland and Cargill.
“The Mexican government is negotiating as hard as it can because there will be losses for both parts. I think that the U.S. administration will take into consideration all the damage it can generate for Americans. Mexican officials are trying to show it,” García told Agriculture.com.
Yet, the trade war with Mexico would not be the only one that could generate loss of market share for U.S. agricultural products. For Brazilian analyst Carlos Cogo, who is based in Porto Alegre, Rio Grande do Sul, the U.S. exit of the TPP could be an opportunity for Brazil to sell at least 150 agricultural items for the 12 countries involved, but he sees a risk on the effect of Trump’s policies all over the world.
“The fiscal stimulus and higher interest rates will lead to a stronger dollar. This could generate a wave of devaluations of emerging markets’ currencies,” analyzed Cogo.