Cautions over loss of US’s Mexico ag trade, as Trump takes power

Agrimoney, 20th Jan 2017, by Mike Verdin

US agriculture officials warned of the threat to US meat exports to the key Mexican market posed by a weaker peso, even as Donald Trump, blamed for the drop in the currency, headed for inauguration as president.

The US Department of Agriculture warned that, for 2017, “exchange rate dynamics may create headwinds for trade with Mexico”, the biggest importer of US pork and poultry, as well as dairy products, and the third-ranked buyer of US beef.

The USDA cited the drop in the peso, which has depreciated sharply since November’s presidential election victory by Mr Trump, who has threatened to impose tariffs on US imports from Mexico, and renegotiate the North American Free Trade Agreement, which he has billed the “worst trade deal in history”.

Mr Trump has, in further comments viewed as fuelling the peso’s decline, also threatened to build a wall, paid for by Mexico, along the countries’ near-2,000-mile border, and criticised carmakers for investing in Mexico, which now ranks among the world’s top five largest auto producing nations.

‘Could create a drag’

“[The] recent depreciation of the Mexican peso could create a drag on US animal product exports in 2017,” the USDA said, although flagging too the boost to the affordability of US products from weaker cattle, hog and poultry prices expected this year.

“Lower US prices from larger product supplies could offset some of the negative exchange rate effects as the year unfolds.”

In fact, any currency impact appears absent from the latest trade data, for November, which show US pork exports to Mexico up 21% year on year at 73,984 tonnes, and beef shipments up 12.2% at 21,991 tonnes, although turkey volumes were in decline.

“It is notable that heavy shipments to Mexico took place in November despite the sharp depreciation of the peso… providing potential evidence that low prices can offset some of the negative effects from exchange rate dynamics”.

Trade deal benefits

The comments – which came the same day as Sonny Perdue was appointed US agriculture secretary, and hours before Friday’s inauguration of Mr Trump as US president – follow a series of comment from the agriculture sector cautioning against loss of free trade agreements such as Nafta.

Last month, US Wheat Associates, which promotes US wheat exports, said that “It is difficult to appreciate… the ramifications of threats to pull out of agreements or impose WTO-inconsistent punitive tariffs, should any of those actually occur”.

The US Dairy Export Council two weeks ago said that “the US dairy industry, like most other agricultural sectors across America, has significantly benefited from the agricultural provisions of prior US free trade agreements.

“Our dairy agreement with Mexico has created an export market worth well over $1bn a year.”

‘Critical market’

Separately on Thursday, the US Grains Council, which promotes US exports of feed grains, warned that “US farmers would feel the pinch” if Nafta trade terms were eroded.

“It would be a pretty bad situation for American farmers if Nafta is weakened,” said Ryan La Grand, USGC director in Mexico.

“What you would probably have is an increase in tariffs, and that would cause the Mexicans to look south – look to Brazil and Argentina – for more of their corn, cutting into our market share and eventually affecting the price of US corn,” Mr LeGrand said.

Mexico, as the top importer of US corn, second-ranked buyer of US distillers’ grains (DDGs), and a major buyer of US barley and sorghum, is “a critical market for our nation’s farmers”, he said.