Mexican metrics: USDA trains spotlight on risk to corn trade with US

By Aerin Einstein-Curtis

- Last updated on GMT

© iStock/tkacchuk
© iStock/tkacchuk

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As Mexico becomes a more attractive and sophisticated importer, some other countries that produce yellow corn, such as Brazil and Argentina, have shown interest in exporting to the Central American country, claims the USDA.

An update on Mexican grain production was released in a recent attaché report​ by the US Department of Agriculture (USDA).

Grain production in that country is expected to return to average levels in marketing year (MY) 2017/18, given normal weather after higher wheat and corn production and lower sorghum production in MY 2016/17, said the US agency.

However, due to expected slower economic growth in 2017, grain consumption is forecast to increase only slightly in the period. 

Mexico is the world’s sixth largest producer of corn, second largest corn importer, and the fifth largest consumer of corn. Moreover, corn is by far the most important agricultural commodity in Mexico, both in terms of production and consumption, according to data from the USDA.

The USDA report noted recent discussion on what role the US will play as a feed grain-trading partner with Mexico moving forward:

"The Mexican government has made public statements in recent months indicating that it has a strategic objective to increase diversification of its agricultural import suppliers.

"In the longer term, this could mean that Mexico would not rely only on US corn imports, as is currently the case."

However, the USDA said that given there have not been any changes to policy or economic factors, it is expected that over the mid-term at least, Mexico will remain a substantial importer of corn from the US.

“If Mexico were to move to South America it’s going to hurt them, because it will cost them more for the corn,” ​said Chad Hart, associate professor of economics crop markets specialist extension economist with Iowa State University. “And it hurts the US, because if we lose Mexico, then we have to find other markets, which will take some time. Both countries would suffer some economic damage because of that.”

Mexico is a major market for the US feed market, he told us. For some products, the country is the US’s number one export location.

“They can do it, [but] it would be costly to do it – we’re the least cost market for them,” ​he said. “They’ll pay more for that corn – we talk about these things, but when you get in trade dispute like this both countries are hurt by the action.”

Mexican metrics  

Corn production in Mexico is set at 25.25m metric tons, assuming normal weather conditions, said the USDA. Insufficient rain though could reduce crop production.

Producers had a record year in 2016/17. But the upcoming harvest is anticipated to be smaller with a reduction in both harvested area and yield.

Low international corn prices may limit the amount of crop-boosting technology used, the attachés said. “In addition, some private sources stated that the lower level of support given by the Mexican government through its agricultural programs could adversely impact planting intentions for corn and other coarse grains."

Corn production for the 2016/17 winter crop is expected to be 8.3m metric tons, a slight drop from last year, said the USDA.

Total corn use is predicted to increase by 1.9% in MY 2017/18, and is driven in part by the expansion of the Mexican livestock and poultry sectors, said the attachés. “Feed consumption is expected to increase just 2.3% as result of the economic slowdown, compared to 4% in recent years,”​ they added.

“Animal feed industry sources pointed out that the market for poultry, pork, and beef in Mexico could weaken in 2017 compared to recent history, largely because of reduced consumer purchasing power,” ​they said. “As a result, they foresee weak demand for (mainly imported) yellow corn compared to the previous two years.”

Overall imports for MY 2017/18 are expected to be about 13.4m metric tons, they said.  

Sorghum story 

Wheat production is expected to be 3.65m metric tons, a drop of 6% from what was anticipated last year, said the USDA. The drop stems from reduced area harvested and poor weather condition in the wheat production areas.

The international wheat market also has negatively influenced farmers and many switched to the production of other crops, the department said.

Additionally, the availability of less expensive feed grains mean that feed use is anticipated to fall by about 350,000 metric tons, the department said. However, imports from the US are expected to increase by about 3.65m metric tons.

Wheat exports for MY 2017/18 are forecast to fall slightly to about 1.25m metric tons from reduced production, the department said.

As some producers switch from corn to sorghum, production is anticipated to increase in MY 2017/18, said the attachés. Yields are forecast to reach 3.529 metric tons per hectare.

However, it continues to be an important animal feed and at times is considered equivalent or preferred to corn, said the USDA. Consumption is expected to increase to 6.25 metric tons for MY 2017/18.

“Sorghum can be processed to further improve its feed value, and techniques such as grinding, crushing, steaming, steam flaking, popping, and extruding, all have been used to enhance the grain for feeding,” ​said the department. “Sorghum is fed to laying hens and poultry, beef and dairy cattle, and hogs, and it is also used in pet foods.”

The poultry sector continues to be the major consumer of sorghum, said the attachés. The economic slowdown is anticipated to reduce pork and beef consumption, but expand poultry and egg production.

Imports, however, are expected to drop compared to previous years based on local production, they said. “Private analysts indicated that sorghum, corn, and even wheat will all continue competing with each other to some degree to meet Mexican feed demand, and ultimately choices between these products will depend on the market price,” ​they added.

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