Lots at stake for US agriculture amid Mexican, Canadian trade threats

With risks to US soyabean trade with China already in the air, trade threats from Mexico and Canada may be the last thing the US agriculture industry wants to see. But that is precisely what happened on Thursday. The United States fiercely angered its neighbours by proceeding with steel and aluminium tariffs against them despite earlier talks of possible exemptions. Unless the issue is resolved quickly, the impact on US agriculture could worsen.
Canada and Mexico were the Nos. 1 and 3 importers of US agricultural products by value in 2017, respectively. Both countries hit back with their own list of US goods to target hours after the United States decided to impose tariffs on aluminium and steel imports from Canada, Mexico, and the European Union.
This only added to existing anxiety in the agriculture sector as the three countries continue talks to renegotiate the North American Free Trade Agreement. On Thursday, Mexico's economy ministry imposed "equivalent" measures on US farm and industrial products, effective until the US government eliminates its tariffs. Mexico's Economy Minister estimated the tariffs would affect $4 billion in trade between the two countries.
Canada also announced on Thursday it will impose retaliatory tariffs on $12.8 billion (C$16.6 billion) worth of US exports. The Mexican list of US goods includes pork legs, apples, grapes, cheese and steel. Canada's proposed tariffs cover whiskey, orange juice and other food products, in addition to steel and aluminium in various forms. Canada is the largest supplier of steel and aluminium products to the United States.
Mexico imported $19.5 billion worth of US agricultural and related products in 2017, behind China with $24.1 billion and Canada with $24.6 billion. Canada's agriculture-related imports of US goods mostly comprise consumer-oriented products, such as prepared foods and fresh fruits and vegetables. Mexico's top two grabs by dollar value are corn and soyabeans, followed by pork and pork products at $1.5 billion.
Mexico's measures appeared to include only a portion of US pork and product imports, but traders did not like the news. July lean hogs on the Chicago Mercantile Exchange plunged 3 percent on Thursday, its largest single-day percentage drop in two months. Luckily for US corn and soyabean producers, their products were not in Mexico's crosshairs on Thursday, but that does not mean they are safe.
In terms of Canada's list, exports of US fruit and vegetable juices to its northern neighbour totalled $412 million in 2017, with orange juice products accounting for a little less than half. With the amount of corn and soyabeans it purchases, Mexico has more potential to directly influence US grain and oilseed markets than does Canada. Mexico's threat to US pork also directly impacts grains because they are used in livestock feed.
The way the ongoing trade dispute with China unfolded should be a lesson. China's list of US goods to tax did not include soyabeans when threats initially started flying between the two countries earlier this year. But when Washington raised the stakes so did Beijing, throwing soyabeans into the mix, which are worth at least $12 billion a year to the United States. If Mexico wants to inflict pain on US agriculture, corn would be its trump card, followed by soyabeans. The United States shipped 14.7 million tonnes of the yellow grain to its largest buyer in 2017, worth $2.65 billion, and that made up 28 percent of total US corn shipments.
Mexico is the top customer of US pork and pork products, accounting for one-third of all US exports last year. It is also the No. 2 buyer of US beans and meal. The United States shipped 3.9 million tonnes of soyabeans to its southern neighbour in 2017, worth $1.6 billion. So far, sales of US corn and soyabeans to Mexico for the 2017/18 marketing year have been strong, despite fears that tough trade rhetoric out of Washington would spoil business.
Mexico's year-to-date (through May 17) purchases of US corn for 2017/18 total 13.4 million tonnes, some 6 percent more than last year. Soyabean purchases for delivery in the current marketing year are an impressive 21 percent larger than a year ago at a record 4.2 million tonnes.