NAFTA Along the Rio Grande

PROGRESO, Texas (DTN) -- Moving five at a time, grain trucks with double trailers pull out of the Grupo Chapa Quiroga grain elevator on the Texas side of the border and start hauling U.S. corn across the Progreso International Bridge just a stone's throw from the grain company's weigh station.

Since 2011, Grupo Chapa Quiroga has crossed over from the Mexican state of Tamaulipas to gain a toehold of the grain trade in the Rio Grande Valley on the Texas side of the border.

The Mexican agribusiness last year moved about 60,000 metric tons of corn, sorghum, cotton and even some dried distillers grain from U.S. farmers south into Mexico for its grain trade there. The grain shipments are inspected on both sides of the border, and there's a toll to cross, but the Mexican agribusiness has taken full advantage of shipping both grain and farm machinery across the border tariff-free.

"NAFTA has given us the opportunity to invest in the U.S. to buy grain from American farmers and sell it to our customers in Mexico," said Jaime Castrellon, a Mexican farmer and board member for Grupo Chapa Quiroga, speaking through an interpreter.

This week, DTN/The Progressive Farmer is taking part in a tour of the grain trade in Texas and Mexico sponsored by the U.S. Grains Council. The week started by visiting farmers in Texas and visiting grain elevators near the Mexican border.

Grain farmers and agribusinesses along the Texas border have found various ways to blend the grain business because of the tariff-free flow of goods. Grupo Chapa Quiroga, for instance, bought three older grain facilities along the border, but the company also buys used farm machinery in the U.S. and sells the equipment to Mexican farmers.

"In Mexico, our farmers like John Deere, John Deere, John Deere," Castrellon said. "They are married to that brand."

The U.S., Mexico and Canada are slated to start renegotiating the North American Free Trade Agreement next week in Washington. President Donald Trump's administration wants to reduce the country's overall trade deficit, especially with Mexico. Most of the focus revolves around manufacturing, but the grain trade is fearful agriculture could get roped into changes in the trade agreement, especially if talks were to break down.

"We are not terribly aware of what changes they are talking about in the negotiations might be, but what we want is a free market to continue in the U.S.," Castrellon said.

Different laws do create some quirks in the way Mexican and U.S. companies operate. For instance, Mexico allows semitrucks to pull double trailers -- hauling about 100 metric tons.

U.S. law on trucking weight varies by state, but generally the U.S. restricts semitrucks to one trailer at 40 short tons. There is a small zone along the border where the Mexican trucks operate. It's one of the reasons Chapa Quiroga has its Progreso elevator there so it can swap out U.S. and Mexican trailers.

Major grain companies largely focus more on shipping unit trains that the larger companies can fill. Chapa Quiroga staff noted they compete heavily against ADM, Cargill and Gavilon, which has the most storage of any company in the Rio Grande Valley.

"We rely heavily on the lack of a tariff here along the border," said Daniel Perkins, manager of Gavilon's operations in Progreso. "We compete with Chapa, but they are also customers. There's a lot of dependency or benefit we get from NAFTA."

American farmers such as Charles Ring also have built their business models around the open border. He's concerned agriculture could become a pawn in the trade talks. "We have got a good thing going on, and we don't want to lose the market. We need to maintain that free access across the river," said Ring, who farms near Sinton, Texas.

Ring, who just left the U.S. Grains Council board of directors after six years, farms about 7,400 acres of corn, cotton and sorghum with his brother. He's got ample storage on the farm to hedge his risk and capture higher months by holding.

"If it's open and fair, we've got a shot at it," Ring said. "Then it's just a matter of the price of the commodity."

Ring notes U.S. corn is cheaper, and most of Mexico is not set up for the storage facilities or ports to bring in large volumes of grains from South America. Still, changes in tariffs or other import policies could cause Mexican grain companies to invest in that necessary infrastructure.

"If it takes storage facilities for them to get cheaper corn, somebody will figure out how to do it," Ring said.

While Ring expresses a little more concern about changes to NAFTA, a neighboring cotton, corn and sorghum farmer said he has faith in the president to make a deal. Bobby Rieder said the problem isn't NAFTA, but farmers are overregulated, which leads to the need for trade deals.

"I have faith in him (Trump) that he's going to do 100 times better than the alternatives that we had," Rieder said. "He's a businessman. He's going to do what he thinks is good for business. I don't know if he was ever really into agriculture, but basically business is business. Fair trade is better than free trade, and I think he understands that. I think he also understands this country was overregulated to begin with."

From the Mexican side, Castrellon is worried about the political dynamics with the NAFTA talks changing the relationships along the border.

"What you hear sometimes coming out of the new U.S. president, the way he expresses himself, it's not something that really contributes to a good business environment," Castrellon said.

Ring sees several benefits to selling into Mexico. For one, Mexican buyers pay upfront. There's money in the bank before the grain even moves, he said, "which is fantastic." But the ability of Mexican grain companies to buy U.S. corn shifts when the peso falls compared to the dollar. When Trump was elected, the peso fell to a 23-to-1 ratio with the dollar. It's about 18-to-1 right now.

"As the value comes back, they are in the market, but it makes it a little more difficult. The peso is very important for us, too. We need the peso to go up so we can get them to buy more from us," Ring said. "A good economy in Mexico is important to us marketing our corn."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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