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William W. "Bill" Wilson, a North Dakota State University agricultural economist, and adviser to agribusiness firms and a board member for NCH Capital, told CornVention 2017 goers in Fargo that they have much to lose from trade disruptions driven by politics. Photo taken Feb. 8, 2017, in Fargo. Mikkel Pates/ Forum News Service

Expect ‘unpleasant’ corn, soy upsets

FARGO, N.D. — Corn, soybean and wheat exporters in the region can strap in for a bumpy ride if existing multi-country trade deals are scrapped or made into bilateral deals in a new political arena.

William "Bill" Wilson, a North Dakota State University agricultural economist, spoke Feb. 8 at the Cornvention 2017 in Fargo, N.D. The annual event is sponsored by the North Dakota Corn Utilization Council and the North Dakota Corn Growers Association. He said the Donald Trump administration has made statements indicating potential disruption of ag trade with China and Mexico through the North American Free Trade Agreement.

Wilson said if China stopped importing 80 million tons of U.S. soybeans, they'd have to acquire it elsewhere, probably Argentina, Brazil and Ukraine. Then U.S. soybeans would have to go to Europe and the Middle East. "It would be a tremendous rearrangement of trade," Wilson said. "It would be very, very, very costly," he said. "Could we survive? Yes. But it would be very burdensome, costly, risky."

No. 1 corn market

Similarly, Mexico takes 10 million tons of corn and is the No. 1 importer. “Mexico is a supplier of our vegetables — particularly broccoli and avocados," Wilson said. NAFTA was "just about a perfect trade agreement for agriculture."

Wilson said Trump's desire to replace multilateral trade deals with bilateral deals flies in the face of the fact that multilateral deals are forged for practical, political reasons. "It's very hard for me to imagine how you can substitute individual agreements when in reality the world wants multilateral agreements."

China more recently has unilaterally cancelled or diverted about 12 percent of the corn shipments and 29 percent of the soybean deals, adding costs in ocean rates and "counter-party" risk costs. Companies continue to do business with them because they are such a large customer.

The U.S. has been vigilant on country-owned trading companies in Canada and Australia, but has said little about the Chinese National Cereals, Oils and Foodstuffs Corp. China has provided COFCO with about $14 billion to acquire assets around the world, notably in Brazil and Ukraine, Russia and Argentina.

Other issues

Wilson touched on a number of trade issues:

  • Panama Canal usage is falling short of expectations after a June 26, 2016 reopening after a canal expansion that cost up to $7 billion, Wilson said. The widening and deepening of the canal was "built on $80 a barrel oil." Low oil prices, lower shipping costs and lower interest rates have influenced Brazil and others to ship grain south of the African continent instead of going through the canal.
  • The need to feed 9 billion people on the planet by 2050 is still accepted by most economists, but some are beginning to doubt it'll be a problem. World agricultural productivity needs to increase 1.75 percent per year to feed 9 billion people by 2050, but is increasing at a lesser amount. Some companies are investing to meet that demand.
  • Russia doesn't allow GMO crops and will expand non-GMO crops. The country has lots of corruption and technology lags and Wilson drew chuckles when he noted the country's leading wheat variety is Moscow 52 — a variety released 65 years ago in 1952.

Agricultural technology is improving productivity in the U.S. Some 460 North American companies are working in the area of "precision-to-decision agriculture." That competition will result in better technology for farmers.

  • Genetically modified crops give U.S. farmers a four- to five-year jump on other countries, before the technology is commercialized in other countries. Canada now produces more acres of genetically modified canola as they do wheat. Soybean acres have shifted to the north in the U.S. and Canadians are trying to grow more of them. Canada now produces more acres of genetically modified canola than they do wheat.
  • The cost of "deregulating"  a genetically-modified technology into the agricultural marketplace has escalated sharply, increasing from $70 million ten years ago  to $150 million today. Wilson said some company executives have told him the cost is as high as $250 million to get a trait into the marketplace. "That's a killer," he said. He doubted the proposed mergers between companies like Bayer and Monsanto will significantly change those costs.