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Trump’s Border Tax Could Ruffle Mexico’s Feathers

U.S. ag exports could be threatened

President Donald Trump’s proposal of a 20% import tariff on Mexico to pay for a 2,000-mile-long wall along the U.S. Southern border has raised some eyebrows within agriculture circles.

Louise Gartner, Spectrum Commodities, says there was widespread disappointment Friday as the new administration pulled out of the Trans-Pacific Partnership and then began steps to renegotiate NAFTA. “As if that weren’t enough angst for ag markets, the spat developing with Mexico about paying for a border wall could easily morph into a trade war,” Gartner says.

The U.S. and Mexico trade products at nearly free levels, under the North American Free Trade Agreement that was settled in 1994.

In 2015, the U.S. shipped $2.3 billion worth of corn and $1.4 billion worth of soybeans to Mexico. In addition, over $1.0 billion each worth of dairy, pork, pork products, beef, and beef products were sold to the U.S.’s southern border neighbor.

Mexico, the No. 2 customer for U.S. corn exports, buys the grain mainly to feed their animals.

According to the Mexican feed industry, the country imported roughly half of the corn, sorghum, and DDGS used in livestock feed, according to a 2014 article published in Successful Farming magazine. In that same article, the U.S. minister-counselor for agriculture, Dan Berman, noted that corn bought from other countries is rare.

“For yellow corn, we (U.S.) own the market,” Berman says. “It’s a newsworthy item if a load comes in from somewhere that is not the U.S.”

The neighboring country ranks third among U.S. agricultural export markets, buying corn, dairy, beef, pork, poultry and prepared foods.

In 2015, Mexico imported a total of $17.7 billion of U.S. agricultural products.

In a period of bloated global supplies of corn, the U.S. could use all of the customers it can muster to consume a projected 2016 output of over 15.2 billion bushels and large carryovers that are likely to occur in the 2017 crop-season.

Roger Zylstra, Iowa Corn Growers Association’s executive officer, says Mexico remains an important trade partner.

“At this time, the crystal ball on corn trade is very cloudy.  The Iowa Corn Promotion board has worked very hard to develop relationships with Mexico and other trading partners. We are continuing to work with our partners in Mexico and reassure them that we are the best and most reliable supplier of corn. We hope to continue the relationships we have worked so hard to build,” Zylstra says.

Pete Meyer, PIRA Energy senior grain analyst, says that it’s unlikely the trade rift will come to pass.

“Mexico may be able to source corn from another country,” Meyer says. Yet, proximity makes a big difference. And they (Mexico buyers) “will find that their freight to haul that corn will be more expensive than buying U.S. corn. And, with other plans by President Trump to back infrastructure projects, it’s likely U.S. freight rates will be getting even cheaper,” he says.

Meyer says it’s important to note that the pace that President Trump is working at is making people’s heads spin.

“If anybody tells you that they know what President Trump will do for agriculture, well, they really don’t know,” Meyer says.

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