U.S. deal with Mexico could erase some of the $2 billion Iowa farmers face in trade losses

Donnelle Eller | The Des Moines Register

Show Caption Hide Caption Phone diplomacy: US, Mexico announce trade deal President Donald Trump says he plans to terminate NAFTA and replace it with the US-Mexico Trade Agreement, excluding Canada. Trump made the comments while speaking with the Mexican President on speakerphone in the Oval Office. (Aug. 27)

Iowa farmers, facing a projected $2 billion in losses from tariffs, could be helped by Monday's big trade announcement: The U.S. has reached a tentative deal with Mexico, potentially paving the way for a pact with Canada.

The news comes as the Trump administration proceeds with a $12 billion farm aid program slated to provide nearly $5 billion in direct payments to farmers, with the largest cut helping soybean growers.

"It's good. It's positive. But it doesn't come close to making farmers whole," said Kirk Leeds, CEO of the Iowa Soybean Association.

"Profitability remains a huge concern for Iowa’s corn farmers," said Mark Recker, president of the Iowa Corn Growers Association. "We now face the fifth consecutive year of declining farm incomes, while facing high levels of uncertainty."

Iowa farm income fell 70 percent to $2.6 billion in 2016 after hitting a high in 2013, U.S. Department of Agriculture data show.

Prices for soybeans, pork, corn and other farm products tumbled with escalating U.S. trade disputes this year with Mexico, Canada, China and the European Union.

In July, President Donald Trump announced $12 billion in emergency aid to farmers caught in his trade war.

The U.S. Department of Agriculture Monday outlined $3.6 billion in direct aid for soybean growers; $290 million for pork producers plus plans to buy $560 million for schools, food banks and other groups; and $96 million for corn producers.

“Early on, the president instructed me … to make sure our farmers did not bear the brunt of unfair retaliatory tariffs," Secretary of Agriculture Sonny Perdue said. The plan, announced Monday, mitigates "the trade damages sustained by our farmers."

Trump said Monday the U.S.-Mexico deal would be good for workers and farmers. "Our farmers are going to be so happy — the farmers who stuck with me when I said I was going to do this.

"Mexico has promised to immediately start purchasing as much farm products as they can. They're going to work on that very hard," Trump said, announcing the deal with Mexico's President Enrique Peña Nieto, who joined the White House announcement via phone.

But Leeds, CEO of the Iowa Soybean Association, said U.S. farmers, particularly soybean growers, need a trade deal with China, the top buyer of U.S. soybeans with purchases last year at $14 billion.

"No country can replace China, at least for soybean growers," he said. "We need a resolution with China. We need a pathway to restore trade normalcy."

Congressional leaders and farm groups said they needed more details about the U.S-Mexico trade agreement.

"The devil will be in the details of this agreement," the Iowa Corn Growers Association said Monday in a statement. "We do know that any agreement that normalizes trade with Mexico will be good for corn grind. That’s all we know at this point."

By Monday, prices had started to recover for Iowa pork producers, facing the largest potential losses from tariffs on exports to Mexico, China and other trade partners. The losses could reach $800 million over the next year, calculates Lee Schulz, an Iowa State University economist.

Pork prices climbed about $6.20 a pig by Monday, but Iowa and U.S. producers were expected to lose about $18 an animal this year because of ongoing trade disputes and increased production.

"To remove the trade barriers is extremely important at a time of high production and low prices," said Gregg Hora, president of the Iowa Pork Producers Association and a Fort Dodge farmer. "It's very beneficial for Iowa and U.S. pork producers to get some profitability back into the pork markets."

Mexico is the largest export market for U.S. pork, based on volume, and it's the top market for U.S. corn. Iowa leads the nation in pork and corn production.

"Mexico's retaliatory duties placed on pork could be removed within a week … but this will not return us to profitability," said Dermot Hayes, also an ISU economist.

Farm leaders said the emergency aid package has limits on how much each producer could receive as well as splitting the aid into two tranches.

Chad Hart, an Iowa State University economist, said he hopes a pending deal with Mexico means an agreement is quick in coming with Canada, another top ag trading partner.

"That would help a lot to alleviate loss concerns," Hart said.

Trump said the U.S. would start negotiations with Canada soon. China, he said, could take time.

China's tariffs on soybeans have caused prices to tumble about $2 a bushel, which could cost Iowa farmers about $772 million.

Perdue, slated to go to the Farm Progress show near Boone Wednesday, called the trade agreement "nothing short of a great victory for farmers and ranchers because locking in our access to Mexican markets is critical to supporting farm income and strengthening rural communities."

Iowa Republicans have been under pressure, given the mounting losses from trade disputes going into midterm elections.

Republicans U.S. Sens. Chuck Grassley and Joni Ernst, and Iowa Gov. Kim Reynolds said the deal Monday is encouraging but they want to see the pact's details.

“Mexico has been an important trading partner of the United States for decades, and farmers in Iowa have felt the sting of increased tariffs on products like pork and cheese," Grassley said, adding that the U.S. also needs a deal with Canada.

"The sooner we get a new agreement in place, the sooner farmers and business people across the country can focus on exporting American products to Canada and Mexico without concern of tariffs," he said.

Ernst said Trump's "fulfillment of a core promise to revamp trade deals brings more certainty to our markets, more money in our pockets, and more confidence to Iowa — and American — farmers, ranchers and manufacturers.”

Reynolds called the deal a "step in the right direction."

"Iowa farmers want free trade and open markets. As trade negotiations proceed, Iowa farmers will continue to do what they do best — produce," she said.

More: What is NAFTA? Seven things to know about the North American free trade