By E. W.
Lang
The USMCA passed the United States House of
Representatives this week by a 385 to 41 vote. This trade agreement among
Mexico, the United States and Canada replaces the old North American Free Trade
Agreement (NAFTA) from 1994.
NAFTA resulted in dramatic increases in ag and
other products crossing borders, and significantly more revenue for U.S.
farmers, partly at the expense of more U.S. manufacturing jobs moving south of
our border. There are always trade offs with this kind of thing. NAFTA had
some, and the USMCA will have some, along with the requisite unintended
consequences, sure to be discovered over time.
The USMCA seems to be a zero sum game for most
parties involved, other than the chicken and milk cow folk on both sides of our
northern border. We gained access to Canadian dairy markets amounting to 3.6% of the dairy
industry up there, this at the expense of Canadian milk producers. We lost
about that much of our dairy market share Canada a couple years ago, manifest
in some Wisconsin and Michigan dairy farmers abruptly losing their milk buyer.
There was some retaliatory action on Canadian lumber imports, resulting in a 24
% increase in the price of all wood products, at least for a time.
The Canadian poultry and dairy production sectors
are both regulated by government quota that restrict how much of each product
farmers can produce. Apparently U.S. poultry producers are going to be able to
move more product north of the border, once this agreement is ratified.
Advantage USA on two counts, dairy and poultry.
Conversely, Canadian milk and poultry
producers end up with the short end of the deal, based on what we know at
this point. It sounds like all other farm commodities enjoy largely the same
export/import treatment of 25 years ago under the original NAFTA. Like I said
earlier, it's a zero sum game for most of agriculture.
As a side note, I write this from the perspective
of a dairy farmer, I'd like to note that Iowa is the leading egg producer of
all the United States. As such, I hope that my undergraduate brethren now
realize they should have spent more time listening, and less time smirking,
during the poultry lectures in university.
One alleged winner in this Agreement are the
autoworkers. And by that I mean autoworkers only, not factory workers,
generally. More - 75% vs. 62% - auto parts will have to be made in the United
States, and 30% of production will have to be done by workers making an average
of $16 per hour. And though $16 isn't a very high average, all this regulation
burdens the auto industry. As such, this clause is largely a campaign device,
rather than an actual benefit to people on the automotive production line.
There is also a mechanism for the U.S. to monitor
pay and working conditions in Mexican factories. Mexico really doesn't like
this for reasons obvious. It's not like we would ever allow Canadian referees
to determine if we're playing hockey right. And we don't let the Mounties ride
in to inspect our Maple Syrup industry, or to monitor how often we say
"please" and "thank you" in social settings. Again, this is
a campaign device that was needed to ease USMCA passage in the House as an
election year approaches.
Corn growers and their fellow travelers, the
ethanol producers, got bad news this week in the form of EPA blending
requirements. It looks like some ethanol plants will remain closed as the
federal government has just designated winners (petroleum) and losers
(corn/ethanol) in a segment of the energy industry. Corn producers should
get some livestock so they have something to do the other ten months a year.
I've also been thinking of a couple ethanol gentlemen, and I use that term
loosely, who crossed me 15 and 20 years ago. Tough darts served cold are the
best kind.
Butter is closing out the week at $2.00 per lb., up four cents but still near
the three year low of $1.91. Barrel cheddar closed at $1.67 per lb., down
three for the week. Blocks ended at $1.86 per lb., up six over the last
five trading days. The block barrel spread is 19 cents, which seems high.
Perhaps barrels are too low or blocks are too high. Your guess is as good as
mine.
Class III Milk Futures for calendar 2020 run from
$17.25 to $17.69 in each of the trading months. Dec., 2019 Class III is $19.35 per cwt.
Dec. Class IV is $16.72 and Class IV for 2020 runs from $17 to $18.25 per
cwt.