Trump administration sows confusion about NAFTA

2017-05-13T16:00:00Z Trump administration sows confusion about NAFTA Illinois Farmer Today
May 13, 2017 4:00 pm

Editor’s note: Gary Schnitkey, Kathy Baylis and Jonathan Coppess, University of Illinois ag economists, for the university’s Farmdoc Daily website April 28.

Recent news from the Trump Administration has sowed confusion about the President’s intentions with respect to the North American Free Trade Agreement (NAFTA).

NAFTA is a trade agreement between the Canada, Mexico and the United States and was put in place in 1994. For Midwest farmers, renegotiating NAFTA is a concern because Canada and Mexico import significant amounts of corn and soybeans.

Imports of corn by Canada and Mexico have increased since 1994 when NAFTA was passed. In 1991 to 1993, Canada imported 38 million bushels of corn. Canada’s corn imports have varied over time but have generally grown (see Figure 1). The highest quantity of corn imports, 155 million bushels, occurred in 2001 and 2002. From 2014 to 2016, Canada imported an average of 47 million bushels per year.

Not all of these imports of corn by Canada and Mexico came from the U.S., but it is safe to assume that a large portion of the imports did. From 2014 to 2016, the U.S. produced an annual average of 14,322 million bushel of corn. Exports were 1,996 million bushels, or 14% of total production.

Together Canada and Mexico’s imports of 560 million bushels constitutes 28 percent of total US corn exports. Reduction of these imports would have a disproportionately large impact on corn prices, as the relationship between demand quantities and prices are inelastic: a percentage quantity change results in a larger percentage change in price.

Similar to corn, soybean imports into Canada and Mexico have substantially increased since the passage of NAFTA in 1994 (see Figure 2). From 1991 to 1993, soybean imports into Canada averaged 4 million bushels, growing to 12 million bushels on average in 2014-2016. Soybean imports into Mexico grew from an average of 79 million bushels per year from 1991 to 1993, to 150 million bushels per year from 2014 to 2016.

Soybean production in the U.S. averaged 4,053 million bushels from 2014 to 2016. For the same time period, exports averaged 1,931 million bushels of soybeans representing 48 percent of production. If trends continue, over 50 percent of the soybean crop produced in the Unites States will be exported in the near future.

Commentary, summary

Exports are important sources of use of corn and soybeans, and particularly so for soybeans. Mexico and Canada are important customers of U.S. products. Potential disruptions in the movements of grains could have negative impacts on prices.

The importance of export to domestic agriculture is likely to grow in the future. Technological changes will continue to occur in the United States, leading to higher yields and more corn and soybean supply. At this point, one of the areas of continued growth in use of U.S. corn and soybeans is likely to be exports.

Being a reliable supplier is an important characteristic of agricultural exporters. If an exporter is not viewed as reliable, other countries may look elsewhere for grain supplies. Some reactions along these lines have taken place because of trade discussions coming from the U.S. early in 2017.

For example, Mexico has threatened to place a tax on U.S. corn imports in response to the President’s comments about NAFTA and has also begun to buy corn from Argentina and Brazil. Whether these efforts have long term negative impacts on U.S. agricultural trade remains to be seen.

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