Trump Hurting Trade To Mexico? Not Yet
The Trump Administration’s first months made several people in the grain market eager to see how it would develop.
The President’s speeches against trade generated some fears in the agricultural community, though most rural states in America voted for him.
One country was a specific target of the Trump rhetoric against “unfair trader” and that nation was the largest buyer of corn from the United States. Mexico, a buyer of several other U.S. agricultural products, promised to seek aggressively other sources for agricultural products.
So far, the Latin American country has purchased less from the United States, but it has changed the world very much. Mexican meal processor Gramosa bought one cargo of 60,000 tons of corn from Brazil and other wheat shipments of 50,000 tons came from Argentina. Japan dethroned Mexico as America’s largest buyer of corn, according to the USDA, but still goes first to buy food from the U.S. most of the times.
In fact, on Monday, USDA announced that Mexico bought 597,464 metric tons of U.S. corn for delivery during the 2017/2018 marketing year.
Most analysts blame the United States comparative advantage for being preferred for grain purchases. While the United States can send grain by rail at a cost of $ 70 to $ 80 per ton from Nebraska or Iowa to Mexico, Brazil sends soybeans or corn by truck. If the distance from the state of Mato Grosso is considered, this cost jumps to over $ 100 per ton, but it would also need to ship from a port to Mexico or other destination.
“When you want to sell something, the one who really rules that is the consumer. So, the cheaper it is, the best is for the consumer. And even when you are talking about commodities, you are not just talking about prices. It is a bit more complex. It is about relationships, right supply, timing, etc.,” said Anderson Galvão, a CEO at Céleres Consultoria from Uberlândia, Brazil.
“If you look at the investigations about Brazilian beef, you will see a fall of beef export, but a fast recovery because there was no cheaper replacement,” added Galvão in an interview with Agriculture.com, talking about the scandals involving giant meat packager JBS.
Even when you talk about a country that is located far from the United States, like Chile, there is still competitive advantage compared to Brazil. “When we look at shipping rates of corn from Brazil to Chile, it is still cheaper to do it from the United States, though there is a distance,” reveals Paulo Bertolini, director at the Brazilian Association of Corn Growers, and a producer in the state of Paraná. Brazil has a cabotage law that forbids foreign companies from doing local shipments, something that limits big cargoes also for exports because one ship could be loaded in different places in the country and later export a higher volume.
Another competitive advantage of the United States against Brazil is that Mexico demands soybean meal, not grains, and Brazil has a limited crushing industry to offer the necessary supply for that country.
“In this case, the U.S. offers what the customer needs, which is the soybean meal. In those terms, I see Argentina as the most competitive country for soybeans [as a share of the total country production]. They can supply the grain, soybean meal, soybean oil or biodiesel, and these produced near the farms. But the export volume is not that significant compared to the U.S,” explained Bill George, an Oilseed and Trade analyst at the USDA, in an interview for Agriculture.com.
In addition, a heavy factor in the international trade of agricultural products, as any other products, are duties. As the United States is one of the countries that has more trade agreements in the world, it has an important advantage compared to Brazil or other strong agricultural players. Brazil’s only trade is the Mercosur that is an economic bloc that includes Argentina, Uruguay, and Paraguay, with a shared external tariff. But the United States has several trade agreements, some of which are made with huge agricultural buyers.
The Andean Community, for instance, has four countries (Colombia, Peru, Ecuador, and Bolivia) and nearly with 100 million people with a huge demand for corn and soybean meal. While the United States has trade agreements with Peru and Colombia, the countries of the Andean Community impose a 64% duty on Brazilian grain.
Another large corn buyer that the U.S. has a trade agreement with is South Korea.
Recently, instead of restricting trade, the Trump Administration has opened up new markets for U.S. agricultural products. Brazil has accepted the entrance of U.S. fresh beef. China did as well. Argentina opened doors for American poultry, beef, and hog. In the view of Don Roose, an analyst US Commodities Inc, from West Des Moines, Iowa.
“The current concern is that negotiations need to be done gracefully so we do not hurt our current exports. Competition has ramped up around the world. South America ,the FSU, and Europe are all trying to gain an export footing into the U.S. market share.
Realistically most buyers are driven by cost and reliability,” said Roose.
Mike Zuzolo from Global Commodity Analytics opines that the value of the U.S. Dollar has been a strong factor to keep competitiveness on agricultural products. “I am most concerned about the Dollar gaining/appreciating against the Braz. Real, now that Brazil's inflation seems to have peaked and the central bank is likely to lower interest rates to help spur economic growth,” analyzes Zuzolo.
Tip of the Day
To form barriers for birds and rodents, I use my metal press and PVC pipe caps to mold and shape ¼-inch galvanized screen squares. Pieces... read more