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Brexit could bring market, policy impacts for U.S. grains

Largest and longest-term impact on grains could come from trade policy arena.

Britain’s stunning decision to leave the European Union (called "Brexit") could have both market and trade policy effects on the U.S. grain industry, according to the U.S. Grains Council (USGC), but exactly how this critical geopolitical change could affect farmers' bottom lines is among the many questions about what has been dubbed "the messy divorce."

According to USGC, 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 to the EU in the 2014-15 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 to the news, along with other commodities and exchanges, and only began to even out ahead of last week’s U.S. Department Agriculture grain and crop reports.

“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,” USGC noted, adding that its economic forecasts suggest the U.K. will experience a drop in the pound sterling’s exchange rate and economic growth over the next 6-18 months.

Markets might also face negative impacts from Brexit on the euro area and, to a lesser extent, the global economy as it affects demand for grain and the meat it produces, USGC said. “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.”

Still, the largest and longest-term impacts Brexit has on grains could come from the trade policy arena, not the marketplace, according to USGC.

“The vote will clearly put the Transatlantic Trade & Investment Partnership (T-TIP) talks between the United States and European Union in potential jeopardy,” the organization said. “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 U.K. will continue to benefit from existing trade agreements negotiated while it was part of the EU and how U.K. farmers will be subsidized in the absence of the EU's agricultural policy. Changes in either U.K. access or production could affect global trade flows.

With these dynamics in mind, USGC said it will continue its work in Europe and the U.K. with a focus on trade policy and market access as well as programs to generate demand and resolve trade impediments worldwide.

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