The global trade environment is less "explosive" than it was more than a year ago, but world production and supply and COVID-19 restrictions are driving prices, an economist says.
"Wheat prices aren't as attractive as some folks thought they might be if all the trade frictions were eliminated, but we have world-record stocks (and) we've had some fluctuations in exchange rates that affect how we can and can't move product," said Randy Fortenbery, small grains economist for Washington State University.
COVID-19 has reduced demand and closed some borders, restricting movement of people and merchandise.
Because the U.S. leads in the number of new coronavirus cases, exports to other countries could be affected, Fortenbery said.
"If countries quit accepting ships from the U.S., if that were to happen, that would be a pretty negative event," he said. "It remains to be seen to what extent that actually happens."
The U.S.-Mexico-Canada Agreement went into effect July 1, replacing the North American Free Trade Agreement, or NAFTA. Fortenbery doesn't expect it to increase prices for U.S. agricultural products.
"Certainly, it's a positive move regardless, it's just that other things are overhanging the market right now," he said.
The July 1 implementation didn't mean much for agriculture, which had been operating under the assumption that it would go into effect since July 2019, when Mexico ratified the agreement. The U.S. ratified the agreement in January, and Canada followed in March.
Renegotiating the agreement was worthwhile, Fortenbery said, because USMCA now includes interstate commerce through online buying and selling and prevents the three countries from using food safety arguments not supported by science, things that weren't covered in NAFTA because they weren't significant when it was negotiated.
"Was it worth the trade frictions we went through? I'm not sure anybody really benefited from those, and I'm not sure those were necessary to renegotiate the agreement," Fortenbery said.
He's similarly unsure U.S. tariffs on aluminum and steel, including products from Canada and Mexico, and the resulting counter-tariffs on U.S. agriculture were useful to the process, or that they necessarily were implemented to force passage of the agreement.
The biggest benefits for ag under USMCA are greater access to the Canadian market for the dairy industry and changes to the Canadian grading system for U.S. wheat, Fortenbery said.
Canadian regulations previously put U.S. dairy and wheat at a disadvantage by devaluing some of their products and crops.
"Canada is not a huge buyer of U.S. wheat, but if you're a border producer, there are opportunities to move it back and forth across the border," he said.
The deal also restores Mexico as a major buyer of U.S. wheat, Fortenbery added.
"That's not necessarily an improvement on NAFTA because that's where they were before," he said. "Certainly getting this sorted out, signed and put into place gives us a more permanent opportunity to maintain our sales to the Mexican market."
Fortenbery said the phase one agreement with China may still be up in the air, due to COVID-19 and issues with Hong Kong.
Negotiations with India would be critical to opening up demand for pulse crops, Fortenbery said.
For now, Fortenbery is watching the progress of U.S. crops, including corn and wheat, and the value of the U.S. dollar. The first quarter of the wheat marketing year, June 1 to Sept. 1, is when he gauges export opportunities for the rest of the year.
"I'm watching, who's coming in to try to buy? Who's actually accepting shipments of U.S. wheat? How are prices and exchange rates responding to that trade?" he said.