The agriculture market is a hard one to predict. Between the weather and politics, there’s no sure fire answer to what commodity prices might do or when equipment sales might start to pick back up. Throw in all the talk that’s been going on over the North American Free Trade Agreement (NAFTA), and your head starts to spin. Both Mexico and Canada have responded to U.S. reports of leaving or renegotiating NAFTA by limiting — or proposing to limit — imports from the U.S. (dairy for Canada, corn for Mexico). It’s almost like we’re sitting on the sidelines of a very serious game of chicken.
On Friday, The Washington Post had reported “President Trump was set to announce Saturday, on the 100th day of his presidency, that he was withdrawing from the North American Free Trade Agreement. This is the sort of disruptive proclamation that would upend both global and domestic politics and signal to his base that he was keeping his campaign promise to terminate what he once called ‘a total disaster’ and ‘one of the worst deals ever.’” That of course didn’t end up happening, reportedly due to the intervention of newly appointed Secretary of Agriculture Sonny Perdue and Commerce Secretary Wilbur Ross.
Back in January, we asked dealers in a Farm-Equipment.com poll how concerned they were about the White House’s bold statements about revisiting all trade policy and how it may impact ag exports. Of those who responded, 46.5% said they were “significantly concerned at this point.” No-Till Farmer, a sister publication of Farm Equipment, recently conducted a similar poll of its grower audience in which 43% said they think changes to NAFTA and other trade policies will hurt farmers. And that’s not without reason. According to Gary Schnitkey, Department of Agriculture and Consumer Economics at the University of Illinois, imports of corn by Canada and Mexico have increased since 1994 when NAFTA was passed (“A Reminder on NAFTA and Agriculture,” April 28, 2017).
“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,” Schnitkey writes. From 2014-16, 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 constitute 28% of total U.S. 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.
Changes to NAFTA could have a negative impact on corn and soybean prices, which also then impacts equipment sales. Schnitkey says, “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. If exports do not grow, negative impacts can be anticipated for corn and soybean prices.”
How are the customers in your area reacting? As a business, are you taking any steps to prepare for what sort of impact any changes to NAFTA and other trade agreements may have on your customers and as a result on your dealership? I’d like to hear what you think. Share your comments below.