Global Corn: Argentina, Mexico and the U.S. Farmer

The introduction of the North American Free Trade Agreement (NAFTA) in the mid 1990s marked the beginning of current U.S.–Mexico economic relations. With a legislative backdrop conducive to the free-flow of imports and exports across the U.S. southern border, both countries were in a position to expand economically through broadened regulatory cooperation.

Although the legitimacy of NAFTA as a positive economic facilitator is a topic of ongoing debate, agricultural trade between the U.S. and Mexico has flourished since its inception. According to the USDA, Mexico is the third largest market for U.S. agricultural exports. Led by corn, the top five U.S. Ag exports to Mexico are:

From 2006 to 2016, total U.S. Ag exports to Mexico have grown from $10.9 billion to the current $17.9 billion, a 64 percent increase. Much of this growth is commonly attributed to the environment of trade created by NAFTA.

NAFTA: A Political Football

The 2016 U.S. election introduced a direct challenge to NAFTA put forth by Republican presidential candidate Donald Trump. Citing a growing trade deficit with Mexico ($55.6billion for 2016) as cause for a possible exit from NAFTA, Trump took a hard line against the status quo with respect to the current U.S.–Mexico economic relationship.

Upon Trump’s election in November 2016, bold campaign rhetoric became a possible reality, with NAFTA conceivably being abandoned or seriously overhauled. Questions surrounding the future of the$579.7 billion in annual trade between the U.S. and Mexico, including the $17.9 billion in agriculture, created considerable uncertainty within the Ag and business communities of each nation.

Evolving Corn Trade: Impact Upon the U.S. Farmer

As a result, Mexico began seeking alternative sources for one of their largest agricultural needs: corn (specifically yellow corn). Mexico is one of the world’s largest corn producers, but most of domestic stocks are white corn, which is readily processed into human food products. The sought after yellow corn imported from the U.S. is processed into sorghum, which is used as livestock feed.

It is estimated that 98 percent of all Mexican corn imports originate in the U.S. However, that statistic may be subject to change in the near future. Currently, trade talks have started between Mexico, Argentina and Brazil regarding the importation of “duty-free”maize. Any agreements will likely resemble the current import tariff structure given to U.S. producers, providing enough incentive to offset the increase in transport costs associated with shipping by sea rather than by rail.

Mexico’s outsourcing of its yellow corn supply to South American producers could have a substantial impact upon U.S. producers. For the crop marketing year of 2014/15, the U.S.exported 360 million metric tons of corn, with 23 percent going directly to Mexico.The potential loss of a top-three global destination of corn will undoubtedly have serious ramifications facing the U.S. farmer’s bottom line.

In order to fill the void left by the Mexican market, U.S. farmers will be forced to adapt to the situation. Buyers in leading U.S. corn markets, e.g. Japan and Colombia, may become the targets of new trade deals. Excess supply may also be allocated for increased ethanol production or long-term storage. Although each of these alternatives has challenges to its viability, the glut of U.S. corn created by Mexico’s exit will depress pricing in the short term, raising the need for an immediate solution.

As of now, the U.S.–Mexico corn trade is a fluid situation. In retaliation for strong rhetoric by the Trump administration over NAFTA and immigration reform, Mexican officials have threatened to abandon U.S. corn altogether. Currently, the relationship remains intact. However, the future of the U.S.–Mexico corn trade will likely depend on political cooperation between the two nations, not simply supply and demand.