On October 1, 2018, a joint announcement introduced the US-Mexico-Canada Agreement (USMCA), which would replace the current North American Free Trade Agreement (NAFTA). The agreement is not yet law, which first requires its approval by the federal legislative bodies in each of the three countries, so significant uncertainty remains about its final language and/or whether it will actually be enacted. However, if the USMCA does clear the remaining hurdles, a small but important provision could open new markets for northern US grain farmers.
The provision—Section D1 in the Canada-US Bilateral Annex—would eliminate the current Canadian policy to immediately grade US wheat (even grain that is certified to be produced in Canada) at the lowest, feed-grade quality. The feed wheat grading can result in significant price discounts and may create non-tariff barriers to trade. The USMCA would require that US wheat is evaluated based on its actual quality, as long as the US wheat marketed in Canada is a variety registered by the Canadian Food Inspection Agency and Canadian Grains Commission. (It’s important to remember, however, that wheat delivered to Canada would still need to be a registered variety. Here is a listing of registered varieties for different wheat classes and other crops and specifically for Canada Western Red Spring.
This is, of course, good news for US producers, who would gain additional marketing opportunities in locations that may, for some, be closer than delivering to US facilities. However, it is important to consider additional factors that, despite the policy change, may affect decisions to deliver to a Canadian elevator rather than a US facility.
Three such factors—for which market data are relatively easily accessible and that are likely to affect every farm business deciding where to deliver its grain—include: (1) the price offered by a Canadian elevator versus the price offered by a US facility; (2) the USD-CAD exchange rate, because payment at a Canadian elevator will occur in Canadian dollars (CAD); and (3) the distance and cost to truck wheat to the Canadian or US elevator. There are certainly other factors (e.g., truck and driver availability; different driving regulations in Canada and the United States; hired driver and/or producers’ labor costs; ease with which trucks can cross international borders; among others), but these will vary across farm businesses and must be considered on a case-by-case basis when making the delivery decision.
Follow this link to use the new tool from MSU Ag Econ that provides some basic insights about how the three marketing costs can alter the decision of where to deliver grain.