Brexit Could Bring Market, Policy Impacts For U.S. Grains

Britain's stunning decision last week to leave the European Union (EU) could have both market and trade policy effects on the U.S. grain industry, though exactly how this critical geo-political change could impact farmers' bottom lines is among the many questions about what has been dubbed "the messy divorce."

The EU does not import large volumes of U.S. corn due to trade barriers related to biotechnology, which constrain imports for corn co-products as well. Overall, the total value of all types of U.S. feed grain and related products that were exported in the 2014/2015 marketing year was about $745 million, compared to $6.6 billion with Mexico, $5.6 billion with Japan and $35 billion worldwide.

Despite this, grain markets reacted late last week to the news along with other commodities and exchanges, evening out this week ahead of upcoming reports on stocks and use from the U.S. Department Agriculture (USDA) and continuing updates on Midwest weather conditions.

Though the initial grain market impact eased quickly, follow-on effects on exports could be seen from a stronger U.S. dollar, to which global investors have been flocking amid uncertainty about the euro, pound sterling and other global currencies. Economic forecasts suggest the United Kingdom will experience a drop in the sterling's exchange rate and economic growth over the next six to 18 months.

Markets might also face negative impacts from Brexit on the euro area and, to a lesser extent, the global economy, affecting demand for grain and the meat it produces. The financial and political instability could extend into the coming years until the process of leaving the EU is finalized and there is certainty about the United Kingdom's future trade and investment relationships.

The largest and longest-term impacts of the Brexit on grains could, in fact, come from the trade policy arena, not the marketplace.

The vote will clearly put the Transatlantic Trade and Investment Partnership (T-TIP) talks between the United States and European Union in potential jeopardy. Already struggling to make substantive progress, the political objective of completing the negotiations later this year appears out of reach despite statements by administrations on both sides that they'd like to press forward. Without the UK, the economic and geo-political value of T-TIP is diminished, and EU leaders are likely to be distracted for years to come with the Brexit process.

Among other questions to be worked out are if the UK will continue to benefit from existing trade agreements negotiated while it was part of the EU and how UK farmers will be subsidized in absence of the EU agricultural policy. Changes in either UK access or production could affect global trade flows.

With these dynamics in mind, the U.S. Grains Council (USGC) will continue its work in Europe and the UK with a focus on trade policy and market access as well as programs to generate demand and resolve trade impediments worldwide.