Economist Not Surprised Markets Didn't React To USMCA

The United States declined to renew USMCA earlier this month. According to Senior Commodities Economist Mike Castle of StoneX, the market wasn’t surprised by the White House’s decision for several reasons.

“I think the fact that we've known that this is coming for a while, Trump has obviously been pretty clear that he is not a fan of this at this point, you know, kind of wants to stir the pot, for lack of a better term, it's kind of just his negotiating style," Castle said. "But I don't think the market's shocked to hear that we didn't, you know, get the automatic renewal today that, you know, would have extended things through, I believe, 2042.”

In addition, it takes time to walk away from this deal. Castle elaborates on the reality of the process, which includes a decade of annual reviews.

The U.S. Can't Just Walk Away

“But now, like you mentioned, we're going into this annual review process," Castle noted. "It's not like we can just walk away from this in one day, the market recognizes that. And I think another part of why the market isn't necessarily reacting to this news this week, is because we've seen Trump kind of have this back and forth with Canada and with Mexico separately. And then ultimately, what happens is you see a lot noise up front, but at the end of the day, ag products have remained exempt, because they need to.”

When it comes down to the economics of it all, the United States and its North American neighbors have deep trade relationships, making any sort of rapid exit out of USMCA next to impossible.

“Canada, the US, Mexico -- our ag supply chains are so deeply intertwined, that it's really just unfeasible to try and get out of that. It's not really a good move for anyone involved," Castle said. "You know, talk about Canada, they're our top destination for ethanol exports. Obviously, we get the vast majority of our potash, a fair amount of anhydrous ammonia as well. They get a ton of their input from us as well. A lot of this is the same companies that again, have built these supply chains operating as one entity in North America, instead of, you know, three separate countries. Mexico, it's important to not lose sight of the fact they are by far our top destination for feed grain exports, specifically on the corn side of things."

We Can View This As The Next Round

All in all, Castle said the market wasn’t shocked by the move despite the implications that it could have on commodity prices.

“If you, you know, somehow tried to throw a wrench in the works and stop this business that would be very bearish for the US because it would impact our demand," he said. "But again, the market's not really paying attention to this, because I think they're just looking through it. Because it's not as simple as saying, I don't want to participate anymore. The language in the USMCA prevents that from happening. So, there is an extended period to slowly get out of it. Hopefully, we can just view this as another round of some fresh negotiating tactic and allow things to calm down.”

If you have a story idea for the PNW Ag Network, call (509) 547-9791, or e-mail glenn.vaagen@townsquaremedia.com