Down the Pike: What do recent trade deals really mean?

by | Feb 20, 2020 | 0 comments

With President Trump’s signature Jan. 29, the US-Mexico-Canada trade agreement now lacks just Canada’s ratification, to become the North American law of the land.

If and when the Canadian lawmakers ratify the deal will go into effect 90 days later.

While many farm groups in the United States lauded the agreement’s movement, others cried foul.

“We believe USMCA will be devastating to the US cattle industry,” said R-CALF USA CEO Bill Bullard.

The agreement does include a country of origin rule for automobiles (75% of automobile components must be manufactured in US, Mexico or Canada, in order to qualify for tariffs) no country of origin labeling requirement exists for beef, a big point of contention for Bullard’s group and some other beef groups including the United States Cattlemen’s Association and National Farmers Union. Even the automobile origin rule intertwines the three country’s economies, something many US producers contend will not help Americans.

“We have a tremendous trade imbalance because we import more than twice the value of beef and cattle than we export, meaning that we continue to be saddled with a horrendous trade deficit that has averaged well over a billion dollars for the last 25 years,” he said.

USMCA could be even more devastating than NAFTA to cattle producers because the U.S. cattle industry, as the result of NAFTA which encouraged more imports of Canadian and Mexican cattle, has lost much of its infrastructure. “We have fewer producers, fewer auction yards, fewer feedlots and fewer packers,” he said.

“We no longer have the critical mass to withstand bad trade agreements that give the advantage to foreign countries and allow meatpackers to unilaterally decide where to source beef to satisfy America’s appetite.”

No longer will tight supplies equate to good prices for cattle producers, said Bullard. “The packers can simply choose to source cheaper cattle or beef form Canada and Mexico to make up any temporary shortfall we may experience here due to the historic cattle cycle that has been historically tied to supply and demand.”

A South Dakota farmer who was recently re-elected to serve the American Farm Bureau Federation as the group’s vice president says soybeans, beef and corn are three of the region’s biggest commodities that will be affected by the USMCA.

“We continue to look for more uses and markets for our products. The more markets we find, the better off we’ll be price wise,” said Scott VanderWal of Volga, South Dakota.

“Our main goal of USMCA was to not lose the progress we had made with the old NAFTA agreement,” he said. Agreements on sanitary and phytosanitary agreements

are important to maintain, he said, as well as food safety and testing harmonization.

“I know there are a lot of feeder cattle that come in from Canada and Mexico, but I don’t think there are many fed cattle that move that way,” he said. “Some southern feedlots import feeder cattle. There is a lot of give and take with any trade deal, that would just be part of it,” said the soybean farmer who custom feeds cattle and custom harvests.

The North Dakota Farmers Union was disappointed that USMCA didn’t include country of origin labeling for beef, said the group’s president Mark Watne.

“We did miss a huge opportunity. COOL could have been in the negotiations. We didn’t get that done,” he said, but his group does support the enactment of the deal. The current rules of origin state that when an animal is slaughtered or a beef product is substantially transformed, it is considered a product of the country where that happened.

“When you get a trade agreement, that suggests there will be an increased shipment of products,” he said.

But imports are a genuine concern when the consumer can’t differentiate he said.

While the president promoted the deal as a win for wheatgrowers, Watne said the reality is that there is no reason to go north with US wheat. “Canada’s population is low. They overproduce durum and hard red spring wheat. They actually sell more premium products than we do.”

Watne said trucks full of Canadian grain headed south are a regular sight in eastern North Dakota. “You have to give and take some, but the thought process that we’re going to go north and ship grain further into a port that’s only open part of the year into a country that’s oversupplied with wheat is not realistic,” he said.

Meanwhile, President Trump signed a monumental trade deal with China on Jan. 15. The cattle markets responded not with elation, but with a down turn.

Watne said his group is “very much in a watch and wait” mode on China. Shortly after the deal was signed, China bought soybeans from Brazil, saying that US soybeans were priced too high. “We’ve lost 40-50 cents a bushel since the trade agreement was signed. It appears that what we thought was going to be an opportunity was China hoping to buy at an extremely low price that we can’t afford to produce at.”

VanderWal, who was present for the China trade deal signing, said the agreement was historic. “We’ve lost a lot of business in the last 2-3 years. Our exports were down 10 billion dollars. This deal will average 40 billion per year. That’s quite a jump. Some are asking if American agriculture can do that.”

Market reaction was disappointing, VanderWal said, but he believes implementation will be the key to strengthening value again.

R-CALF joins the ranks of “wait and see” on the China agreement. “We continue to support tariffs to offset the currency manipulation and the use of state-owned enterprises but we’re still dealing with a non-market economy that continues to engage in cyber theft, transfer of intellectual properties,” he said.

His group is in “no way” opposed to the deal, but is “sitting and watching” to see how much trading actually takes place.


Article originally published in Tri-State Livestock News, February 20, 2020


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