U.S./Mexico Trade and Unseasonably Warm Weather - Thursday, 16 February 2017

There have been several stories in the media recently regarding Mexico/U.S. trade relations.  Mexico is the 2nd largest importer of U.S. corn in the world today (Japan is our #1 customer) and Monday a bill was introduced by a Mexican senator, Armando Rios Piter that would end that relationship.  Piter would like to see Mexico discontinue all corn purchases originating from the U.S. and instead start buying corn from Brazil and Argentina.  Senator Pita from Mexico told CNN that, “this hostile relationship has consequences” he feels that this is would be a good way to send a message to the United States and President Trump.  Mexico is angry following President Trump’s threats of imposing a 20% tax on imports from countries that the U.S. has a trade deficit with and pulling the U.S. out of NAFTA.  U.S. corn is used in a lot of the food used in the country.  From fine dining in Mexico City to taco’s made with corn shells found everywhere in the country of Mexico. Before NAFTA was made law in 1994 the U.S. shipped corn valued at $391 million to Mexico, in 2015 American farmers sent $2.4 billion.  Darin Newsom, a senior analyst for DTN believes that, “If we do indeed see a trade war where Mexico starts buying corn from Brazil…we’re going to see it affect the corn market and ripple out to the rest of the Ag economy.” Bevan Everett, an analyst from FC Stone sees the situation differently and reported Tuesday that, “This proposal would have the net effect of sharply increasing the cost of corn for Mexico and its people while not ultimately hurting overall U.S. exports.” He bases his conclusions on two main points.  1st Mexico is not set up to receive corn via shipping through ports they are set up to get corn from the U.S. through the rail system. 2nd Brazil and Argentina do not have large supplies of excess corn to export their normal customers are already buying any exportable bushels. If Mexico were desperate enough to bid those bushels higher than “their normal trading partners then those trading partners, whom already do business with the USA would simply turn to the USA for those bushels.” All of this, in his opinion, would ultimately result in no net reduction in corn exports for the U.S.  President Trump plans to renegotiate NAFTA because he feels that the agreement is directly responsible for the surge of U.S. manufacturing jobs that have moved to Mexico since the agreement was enacted. Two weeks ago both countries agreed that they would sit down for negotiations sometime in May following a 90-day consultation period.

 

Peoples Company recently held their 10th Annual Land Investment Expo where they hosted over 700 attendees from 30 states. Steve Bruere, from the firm Peoples Company stated that while there is a lot of interest in purchasing farmland, many outside investors don’t feel that land values are low enough yet to warrant investments.  He said, “investors would prefer to get a 3.5% return or more (for example $350 per acre rent on $10,000 per acre land). At a 4% return, we could sell farms all day long.  However, the farmland market right now is closer to a 3% return.”  The company tracks all farmland sold in Iowa and has reported that there were 100 fewer farms for sale on February 1st of this year than on Feb 1st of 2016.  The firm also reported that even though market prices have been depressed for 3 consecutive years, “we haven’t seen forced land sales.” The graphic below shows results for farmland values from the various Federal Reserve Bank districts around the central U.S.

 

Severe weather along the U.S. west coast is causing delays for the delivery and shipping of U.S. grain and the result is sending freight rates soaring.  Blizzards, heavy rain and even avalanches have slowed the movement of grain to the ports where they head for the lucrative Asian market.  All of this comes at an extremely inconvenient time for U.S. exporters who are trying to export as much as possible before buyers turn to South American suppliers as their harvest advances.  At this time no improvement is in sight though, more storms with heavy rainfall are predicted. There are currently about 60 ships in port or waiting off shore and total load capacity is only 40 ships per month.  A senior official for a major Japanese trading house is looking to source grain as an “emergency measure” in case they are unable to take delivery from the U.S. 

There are currently 3 storms expected to hit along the Pacific Coast over the next few days.  The first and third storm are expected to hit northern and central California while the 2nd of the 3 storms is forecast to affect central and southern California.  In the central and eastern portion of the country spring-like weather will be the story for the weekend and into the first part of next week.  High temperature records are expected to be broken all across the Plains and Midwest.

Get outside and enjoy the warm weekend, there are signs that by the end of next week winter will return.

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