Progress on trade deals could be good news for ethanol industry

Source: By Erin Voegele, Ethanol Producer • Posted: Wednesday, December 5, 2018

Over the past few days, the Trump Administration has announced progress on trade deals with Canada, Mexico and China that could have a positive impact on export markets for U.S. ethanol and distillers dried grains with solubles (DDGS).

During a ceremony in Argentina Nov. 30, President Donald Trump, Canadian Prime Minister Justin Trudeau and then Mexican President Enrique Peña Nieto signed an agreement to replace the North American Free Trade Agreement with the newly negotiated United States-Mexico-Canada Agreement. To come into full force, the USMCA must now be ratified by the lawmakers in all three countries.

Tom Sleight, president and CEO of the U.S. Grains Council, called the signing ceremony “an important next step in the new pact’s final approval and the process of modernizing the most important trade agreement to U.S. grain farmers and exporters.”

“In the latest marketing year, Mexico and Canada again proved to be top buyers of U.S. feed grains in all forms, and both countries still hold significant potential for market expansion given the right trade policy frameworks and the robust market development we intend to undertake there with our partners,” Sleight said.

“We applaud the many members of the Trump Administration, as well as their Mexican and Canadian colleagues, who worked diligently to negotiate this agreement,” he continued. “We see its forward movement as a sign our countries will continue our robust relationship, as business partners and friends.”

The National Corn Growers Association has also applauded the agreement. “U.S. corn farmers are proud of the strong trading relationships NAFTA has enabled us to build with our North American trading partners, exporting more than $3 billion of corn and corn products to Mexico and Canada last year,” said Lynn Chrisp, president of the NCGA. “Today’s signing is an important step toward cementing a modernized relationship with these important partners. NCGA commends leaders from all three nations and looks forward to engaging on next steps as the USMCA moves to Congress for consideration.”

The next day, on Nov. 1, Trump met with Chinese President Xi Jinping. A statement released by the White House indicates Trump has agreed that on Jan. 1, he will leave the tariffs on $200 billion worth of product at the 10 percent rate, and not raise it to 25 percent. In return, China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial and other products from the U.S. in order to reduce the trade imbalance between the two countries. According to the statement, China has agreed to start purchasing agricultural product from U.S. farmers immediately.

Statistics published by the USGC show that Canada imported 336.91 million gallons of U.S. ethanol during the 2017-’18 marketing year, up from 332.63 million gallons during the 2016-’17 marketing year. The country also imported 653,722 metric tons of U.S. DDGS during the 2017-’18 marketing year, down from 669,267 metric tons during the 2016-’17 marketing year.

Mexico imported 31.14 million gallons of U.S. ethanol during the 2017-’18 marketing year, up from 27.6 million gallons during the previous market year. Mexico’s 2017 announcement that it plans to allow E10 blends is expected create additional demand for the fuel. The country also imported 2.13 million metric tons of U.S. DDGS during the 2017-’18 marketing year, up from 2.06 million metric tons during the 2016-’17 marketing year.

China imported approximately 99.85 million gallons of U.S. ethanol during the 2017-’18 marketing year, up from 49.04 million gallons during the previous marketing year. During the 2015-’16 marketing year, before recent tariffs were put in place, the country imported 208.88 million gallons of ethanol, up from only 15.36 million gallon during the 2014-’15 marketing year. Prior to the enactment of recent trade tariffs, China’s move to E10 was expected to significantly increase the country’s market for U.S. ethanol exports. Tariffs have also negatively impacted the Chinese market for U.S. DDGS. The U.S. exported only 168,413 metric tons of DDGS to China during the 2017-’18 marketing year, down significantly from the 6.18 million metric tons of U.S. DDGS China imported four years ago, during the 2013-’14 marketing year.