CommStock Report

Thursday, February 16, 2017
David Kruse

Given the insults and threats thrown Mexico's way by our president and his supporters, it is not surprising that favorable sentiment toward the U.S. in Mexico is at the lowest level in modern history. It is one thing to say that NATFA needs revisions and quite another to treat Mexico like a felon that needs to be walled off completely with the cost of the wall being recovered via confiscation of Mexican assets. This was politically popular in the U.S. where many have been led to feel cheated by Mexicans. Donald has paid for a lot of "big data" gathering and analysis where they glean what people are thinking from posts on social media. Most of his aggressive posturing on issues was supported by "big data" feedback. So in the case of Mexico, Donald is voicing underlying animosity of Americans toward Mexico that exists below the surface. It is not justifiable but that doesn't mean that it doesn't exist.

Mexicans responded in turn with #FueraStarbucks. Now I don't speak Spanish and I had no idea what "Fuera" meant so I googled it. The word did not mean what I thought it might the way the letters started. They were taking out their animosity by calling for a boycott on Starbucks in Mexico. "Fuera" means to stay away from or avoid. In other words, "Don't go to Starbucks.

Twenty-seven percent of U.S. GDP is trade generated. 58 percent of engineers and managers in the Silicon Valley are foreign born. They believe that if immigration is restricted, innovation will suffer. Ninety-seven top companies contributed a court brief against the Immigration executive order. Steve Job's dad emigrated from Syria but that was before the country was destroyed making it a poor precedent. Fifty-two percent of U.S. biomedical researchers are foreign born.

One hundred-fifty Biotech CEOs and venture capitalists wrote to Trump in opposition of the ban citing negative consequences to their industry. That is a lot of foreign interaction and integration of major companies with partners and employees that are not Americans. Everyone from university's to businesses that have people impacted in their organizations that they depend upon were alarmed over the ban disrupting the free movement of a significant component of their personnel. It appears not to be as bad as it first looked but the blowback was understandable.

Forty percent of total pork and beef exports have moved through NAFTA so there is potential for great disruption in both those markets if the renegotiation doesn't go well. Congress has decided that it wasn't such a great idea to can Obamacare without something to replace it. So far President Trump has been all vinegar and nothing sweet in talks with Mexico, managing to turn Mexican public sentiment against the U.S. with his rough treatment. They have been insulted and why would they not be, the way they are being pushed around. As far as the U.S. agriculture sector is concerned, the president disparaged our best customer. Generally that is not a wise thing to do in business.

Could Mexico buy all of its corn from South America? A bill was introduced into the Mexican Senate to require that. The U.S. Grains Council doesn't think that the bill will have legs at this time but it is there ready for the moment they get pushed too far. They are targeting U.S. corn because they think that U.S. corn growers elected Donald Trump so want to target his support. As I noted, there are logistical advantages for Mexico to source corn here delivered by railroad. There is no railroad connecting Mexico to South America so it has to come to a port there and then be shipped inland. That has to be expensive but remember, some South American corn is shipped into the U.S. east coast every year.

The Brazilian corn crop looks promising. They have been increasing production estimates for both Argentine corn and soybeans. Mexico is also the U.S. third largest soybean importer. USDA announced a purchase of 142,500 kmts of soybeans today by Mexico. Origination of corn and soybeans from Brazil would be easy. Wheat and sorghum are imported by ocean port. It would not be impossible for Mexico to use a gulf port of entry to receive corn from Brazil and then rail it from there. The point being is that they are evaluating all of their options getting ready for the worst. They don't expect much good from Trump.

Japan, China, Korea and other major U.S. agriculture importers are going through a similar process as Mexico is doing. They are all reaching out to other suppliers and evaluating their dependence on U.S. supply. China was forecast to import at least 86 mmts of soybeans this marketing year. If China would reduce its purchases from the U.S. just 10 percent, which they could certainly do considering the record crop in Brazil, it would have a major market impact here.

China bought 31.8 mmts of U.S. soybeans last year. The EU bought 5.5 mmts of U.S. soybeans and Donald is squeezing them too. Mexico came in third as a soybean buyer at 3.5 mmts. After China, the next nine U.S. soybean purchasers added together totaled 17.83 mmts in 2016 just 56 percent in total of what China bought. Talk about single buyer market risk!


David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an agriculture commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet. CommStock Investments is a registered CTA, as well as an introducing brokerage.