Cattle and livestock producers will get a glimpse of what happens when your largest customer retaliates in response to artificial trade barriers.
Last week, the Mexican government announced new tariffs on a long list of U.S. products in retaliation for the recent termination of a North American Free Trade Agreement (NAFTA) pilot program that allowed Mexican trucks to operate on this side of the border.
According to the American Meat Institute (AMI), fruits and vegetables, juices, wines and Christmas trees are among the products that will be subjected to tariffs, as of last Thursday. AMI explains most ag products will be assessed punitive import tariffs of 20%, while some other goods will be charged duties of up to 40%.
As reported previously in BEEF Stocker Trends, Mexican cattle producers filed a suit with the World Trade Organization against the U.S. over the mandatory country of origin labeling (COOL). COOL became effective on March 16. Mexican feeder cattle are being docked at the border as buyers try to hedge their bets against subsequent discounts those cattle will receive from packers. Depending on who you talk to, those discounts are running from $60-$100/head or more. Levy that kind of jingle against a four-weight calf, and you can understand their frustration.
“It’s estimated that the loss of the NAFTA markets (Mexico and Canada) would cost cattle producers $50-$60/head,” explains Dan Halstrom, JBS senior vice president for international sale. “But I think it would be quite a bit more than that because of all the end cuts and variety meats we would have to absorb into the domestic market.”
Speaking to the tariffs imposed by Mexico last week, Dillon Feuz, Utah State University ag economist, explained in his “In the Cattle Markets” commentary: “This will likely decrease trade and pressure U.S. prices for those commodities lower. At the present time, beef was spared in this mini trade war. However, if we continue to throw sand in the face of our neighbors to the south, don’t be surprised if beef is soon included in the list of products that have a tariff. In the present economic condition we should be looking for ways to increase not decrease demand.”