Mexican retaliation could hurt corn farmers
Mexico is upping the ante in its war of words with President Trump over trade policy by aiming squarely at the nation's midsection: the corn belt.
And that's making U.S. corn farmers nervous.
In response to Trump's threats of a border tax, Mexican Senator Armando Rios Piter said last week he plans to introduce a bill requiring the country to stop buying corn from the U.S. and shift those purchases to Brazil and Argentina.
Citing Trump's "anti-Mexican position," Rios Piter said in an interview, "It's time to think about how to shift the place where we are putting our money. If we stop buying their corn, farmers would have a good idea how important Mexico is" and realize "that taking this position is not a good idea."
Trump proposed a 20% tax on Mexican imports to pay for a border wall. He also signed an executive order to renegotiate the North American Free Trade Agreement (NAFTA) with Mexico and Canada as part of efforts to close the U.S. trade deficit and bring back factory jobs.
But that could harm sectors such as agriculture that enjoy a trade surplus with the rest of the world. About 15% of the record 15.1 billion bushels of corn produced in the U.S. last year was exported, and Mexico recently surpassed Japan to become the top buyer, says Paul Bertels, chief economist of the National Corn Growers Association. About 27% of U.S. corn exports annually, or $2 billion worth, is shipped to Mexico, mostly for livestock feed.
A loss of that market — and possibly even just an intensifying standoff with Mexico — would lower prices for Midwest corn farmers. "It's definitely going to make it harder for me to make a profit," says Bob Hemesath, a corn farmer in Decorah, Iowa.
Uncertainty over the skirmish may prompt farmers to switch acreage from corn to soybeans as they plot their spring plantings in the next couple of weeks, says Chad Hart, an agricultural economist at Iowa State University.
At least to some extent, Rios Piter is likely posturing to give Mexico negotiating leverage with the U.S., some economists say.
"Mexico wants to show that they are going to drive a hard bargain," Hart says.
While marshaling support for his bill in the Mexican legislature likely would be an uphill climb, Mexican officials are devising precisely those kinds of measures if Trump follows through on threats to impede Mexican shipments to the U.S., says Gary Hufbauer, senior fellow at the Peterson Institute for International Economics.
"Plans are being laid as we speak," he says, adding that U.S. beef, poultry and pork exports to Mexico also would be vulnerable.
A shift to South America would not be easy or inexpensive for Mexico. Midwest corn is mostly delivered to northern Mexico by rail while product destined for the southern part of the country largely arrives by ship from the Gulf of Mexico, Bertels says. Sourcing the southern Mexico deliveries from South America would be far more viable than those destined for the north.
Overall, Hart estimates, the switch would cost Mexican corn buyers an extra 40 cents to 50 cents a bushel. Corn for May delivery is trading at $3.75 a bushel.
Sen. Charles Grassley, R-Iowa, was among lawmakers who met last week with Peter Navarro, Trump's chief trade adviser.
"Mexico is a big importer of American corn and we want to be sure we don't lose that market," Grassley said in an interview.
"If we stop buying their corn, (U.S.) farmers would have a good idea how important Mexico is," said Armando Rios Piter,