U.S. Exports to Mexico Fall as Uncertainty Over Nafta Lingers

Friction between the U.S. and Mexico over trade is starting to cut into sales for U.S. farmers and agricultural companies, adding uncertainty for an industry struggling with low commodity prices and excess supply.

Over the first four months of 2017, Mexican imports of U.S. soybean meal, used to feed poultry and livestock, dropped 15%, the first decrease for the period in four years, according to data from the U.S. Department of Agriculture. Shipments of U.S. chicken meat fell 11%, the biggest decline for the period since 2003. U.S. corn exports to Mexico declined 6%. Mexico is the largest U.S. export market for those commodities.

The numbers depict how Mexican companies are now increasingly buying grain on a short-term basis and purchasing more chicken from Brazil, troubling some industry officials and analysts. The trade data, which is the latest available, indicates that Mexico is starting to follow through on aspirations to buy food from a wider range of countries, and reduce reliance on the U.S.

"We have to send a signal to policy makers in Washington, and emphasize that we are not sitting still," said Raúl Urteaga Trani, head of international affairs for Mexico's Secretariat of Agriculture, who last month shepherded officials from 17 Mexican companies on a trade mission to South America, focused on corn, soybeans and wheat.

Mexico ranks as the third-largest customer for U.S.-produced farm goods overall, accounting for $18 billion in trade last year, and the U.S. is Mexico's biggest market for food, a close-knit trade relationship that has built up around the 1994 North American Free Trade Agreement. That agreement is expected to be renegotiated in August after Mr. Trump claimed Mexico has siphoned jobs, investment and wealth from the U.S. through the deal.

Mexico's declining purchases of some commodities runs counter to the Trump administration's goal to boost U.S. exports generally.

U.S. Agriculture Secretary Sonny Perdue has been working to build bridges to Mexico. In May he initiated a call with his Mexican counterpart, Jose Calzada Rovirosa, that centered on mutually beneficial trade, and Mr. Perdue has invited Mr. Calzada to a two-day meeting next week in Savannah, Ga., where trade is expected to be discussed. Canada's agriculture minister, Lawrence MacAulay, is also expected to attend, along with U.S. business leaders.

Economic and financial conditions can quickly alter trading patterns. The Mexican peso has weakened against the dollar in recent months, making some U.S. products more expensive and Brazilian chicken more attractive to some Mexican buyers.

And while U.S. sales of some crops and meat to Mexico have slowed, the country is buying more U.S. beef and eggs, USDA data for the first four months of the year show.

Still, some U.S. agriculture officials worry that the uncertainly around trade could jeopardize a market that last year bought roughly 13% of total U.S. agricultural exports, at a time American farmers are struggling with low prices. Last week, the U.S. Grains Council, a trade body focused on developing grain exports, dispatched its board of directors to Mexico to emphasize U.S. crop producers' commitment to the country.

"Certainly, we're concerned," said Tom Sleight, the group's chief executive, who has made multiple visits to Mexico since February. "There's a palpable interest on the part of Mexico -- I've heard it referred to as 'Plan B' consistently by the Mexican folks -- to reduce dependence on the U.S., in agricultural commodities, and source those elsewhere."

Concerns have arisen in the U.S. poultry sector that jousting over U.S.-Mexico trade policy could drive Mexican buyers toward Brazilian meatpackers, which have seized on a 2013 move by Mexico's government to allow duty-free poultry meat imports from that country and others. Brazilian chicken sales to Mexico have surged to 52,800 metric tons last year from 387 metric tons in 2013, according to the U.S. Poultry and Egg Export Council, and Brazil has further increased its poultry exports to Mexico this year.

"They're trying to send a message to the [poultry] producers in the U.S.," said Jeremy Scott, analyst with Mizuho Securities USA LLC. But due to its proximity, he said, "the lowest-cost chicken for Mexico is always going to be in the U.S."

Mr. Sleight of the U.S. Grains Council also said Mexican cattle ranchers and hog farmers may be placing fewer long-term orders for U.S. grain partly because ample supplies mean that prices aren't likely to jump significantly. Yet a shift toward short-term buying also reflects Mexican purchasers' uncertainty around trade relations with the U.S. ahead of the Nafta renegotiation, he said.

"There's some anxiety on all sides," the USDA's Mr. Perdue said in a press briefing last week. But he added that Mexico's outreach to South American suppliers may be "a negotiation strategy to let the United States know there are other alternatives."

U.S. farmers and agribusinesses still have the capability to quickly deliver grain and meat to Mexico at cheap rates and that could be hard for South American competitors, which rely on oceangoing vessels, to replicate. "Nobody can do it better, nobody can do it safer, and nobody can do it more logistically friendly than the U.S., and Mexico knows that," said Mr. Perdue.

Mexico's Mr. Urteaga said that last month's visit to Brazil and Argentina showed that those countries' grain can compete on price with U.S. crops. A 25,000-ton shipment of Argentine wheat booked on that trip is due to arrive on Mexico's shores within the next two months, he said.

Mexico values its close ties to the U.S. on food trade, and doesn't want to abandon those, Mr. Urteaga said. "But it is true, there is also some sense of wariness when all these companies hear or read in the media that the Nafta trade talks may not go the way everybody is expecting."

Write to Jacob Bunge at jacob.bunge@wsj.com

(END) Dow Jones Newswires

June 16, 2017 05:44 ET (09:44 GMT)