Brazilian soybean market could win possible US-Mexico tariff conflict: US farmers

The Brazilian soybean market could benefit from a US-Mexico tariff dispute affecting agricultural products, as Mexico -- currently one of the top importers of US soybeans -- may switch suppliers to South America, US farmers believe.

"In any kind of a trade conflict with the US and any other country that impacts ag commodities, Brazil is definitely the winner because they would be able and ready to supply that gap. They would be the beneficiaries," Brady Holst, market development committee chair and At-Large Director of the Illinois Soybean Association told S&P Global Commodity Insights.

Information from the US Department of Agriculture shows that the US serves as the main exporter and supplier of soybeans and related products to Mexico. In turn, Mexico is the second-largest export market for US soybeans and soybean meal.

According to the weekly export report published by the USDA on Feb. 13, exports to Mexico amounted to 80,770 mt between Jan. 31 and Feb. 6 alone. The total commitment with Mexico during the crop marketing year amounted to 3.64 million mt.

"The US as a whole has 84% of the market share of soybeans and soybean meal that goes into Mexico, which is huge. Obviously, we have benefited from free trade agreements to get there. Any tariff would interrupt that, making it easy for Mexico to source beans from Brazil," Holst said.

The US Soybean Export Council recognizes that the US export market faces "increasing competition from South American soy," particularly from Brazil, which could produce 166 million mt during the 2024/2025 harvest -- 18.3 million mt above the previous year, according to the latest data from Brazil's national agriculture agency, Conab.

"Brazil is starting to have a significant impact on the US market because they grow more soybeans than the US, and their acreage expansion has been substantial over the past 10 years. It doesn't look like it's slowing down at all," Holst said.

Others, like Kenneth Smith, former chief negotiator for Mexico in the talks that resulted in the approval of the United States-Mexico-Canada Agreement, are not sure that switching suppliers would be simple for Mexico.

"There are tariff issues to begin with because Mexico doesn't have a free trade agreement with those countries (Brazil and Argentina)," he told Commodity Insights. "There are also freight transportation costs and times. Mexico would need to change its scheme to import those products from those destinations, which sometimes would entail large infrastructure investments."

On Feb. 1, the implementation of a 25% additional tariff on imports from Canada and Mexico was announced by President Donald Trump's administration. The measure, the White House said in a release, would remain in place until both countries addressed the "extraordinary threat posed by illegal aliens and drugs, including deadly fentanyl, which constitutes a national emergency for the US."

The tariffs were postponed for a month shortly after, following Mexico's and Canada's commitments to secure their borders with the US and the agreement of both countries to work with the US to stop fentanyl trafficking.

"I'm hoping, and I would say all farmers are hoping, that this pause becomes permanent, with no tariffs," Holst said. "Both Canada and Mexico are large trading partners and have a huge impact on agriculture, so keeping both countries tariff-free is very important to US farmers."