Markets

Drought in Mexico drives up grain import demand

Peter McMeekin, Grain Brokers Australia, May 14, 2024

Research by CIMMYT and others have helped to lift Mexico’s average wheat yields in recent years, but dry conditions have tempered the outlook for the crop now being harvested. Photo: CIMMYT

THE Mexican winter-crop harvest is well under way, but the production outlook has been severely affected by extremely dry weather conditions, resulting in a decrease in the planted area of both wheat and corn, and a dramatic reduction in the crop yield.

Mexico’s national water authority, Conagua, says this season’s severe drought has intensified, and the country is facing the worst conditions since 2011.

This is not only drastically reducing the availability of irrigation water for crops and potable drinking water for the burgeoning population, but also increasing tensions with the United States, its biggest trading partner, over a 70-year-old water treaty.

Irrigation supplies limited

Under the treaty, Mexico is required to release 1.75 million acre-feet (1 acre-foot = 1.233 million litres) of water every five years to the US from six tributaries that feed into the Rio Grande, the fifth-longest river of North America.

In exchange, the US delivers water back to Mexico via the Colorado River, the eighth-longest river on the continent.

Now into the fourth year of the current five-year cycle, Mexico has only supplied around 30 percent of its obligations as it concentrates on domestic water needs and keeping its farmers pacified.

Virtually all of Mexico’s wheat area is irrigated, and adequate dam-water levels are essential to encourage seeding in the November-to-February planting window, and supply sufficient irrigation water to maintain yield expectations through to harvest.

However, dam levels in the state of Sonora, which accounts for more than half of domestic wheat output, were at a record low of just 18pc in February; likewise in Guanajuato, the second-biggest wheat-producing state, where historically low water-storage levels forced farmers to cut wheat plantings this season.

According to the latest update from the USDA’s Foreign Agricultural Service, 2023-24 wheat production is expected to be 3.1 million tonnes (Mt) off an estimated harvest area of 500,000ha for an average yield of 6.2t/ha.

This is down from its January estimate of 3.5Mt, and 13.2pc lower than the 2022-23 crop, which finished at a tad under 3.6Mt.

Yields have steadily increased over the past six years from 5.2t/ha in 2017-18 to 6.1t/ha last year, based on higher irrigation levels.

However, elevated input costs, poor seed technology, weather extremes, and inefficient use of available irrigation water remain obstacles to consistently increasing yields and production.

Changing import make-up

Wheat imports are forecast at 5.4Mt in the current marketing year, up from 5.2Mt in 2022-23, offsetting the lower production and a slight increase in domestic demand from 7.8Mt to 7.9Mt.

The complexion of Mexico’s wheat imports has changed dramatically over the past three years.

In calendar year 2021, 80pc was sourced from the US, 13.4pc from Canada and bugger all from Russia, but in the first 10 months of 2023, that changed to 60.5pc from the US, 19.3pc from Canada and 16.3pc from Russia.

Mexico is a significant supplier of durum wheat to the export market, with shipments expected to hit 900,000t in the 2023-24 marketing year.

This is an increase of more than 12pc compared to 2022-23, primarily driven by increasing demand from key consumers.

Algeria has traditionally been the primary destination, with the North African nation importing 73pc, 62pc and 77pc of Mexico’s total durum exports in 2021, 2022 and 2023 respectively.

Corn crop shrinks

Corn output has also suffered at the hand of the multi-year drought conditions, with FAS forecasting a total 2023-24 production at 23.3Mt, 17pc lower than the previous season’s record crop of 28.1Mt.

Mexico has two corn crops with around 70pc of output produced in the summer cycle, which is planted from April through to August and harvested in October through to January.

The 30pc balance is winter corn which is sown in November, December and January and harvested in April through to July.

The decreased production estimate reflects official government data, which unveiled lower planted and
harvested areas due to poor early season soil moisture and inadequate irrigation-water supplies, crop damage due to pests and disease, and lower-than-expected yields across most of the country.

The planted area in the summer cycle reportedly declined by 1pc cent to 5.7Mha with final production expected to be around 17Mt.

The unfavourable weather conditions throughout the season led to a 4pc yield decline year on year to an average of 3.24t/ha.

Output in Jalisco, Mexico’s largest summer corn-producing state, was down around 31pc compared to 2022-23.

Low autumn and winter rainfall in key water catchments feeding the larger producing states resulted in a 33pc decline in the winter cycle corn area to around 800,000ha.

According to FAS, the worst-affected states were Sinaloa, Tamaulipas and Sonora.

Water storage levels in Sinaloa, which accounts for around 70pc of winter corn output, were only at 21pc of capacity in early February, 60pc lower than at the same time in 2023.

Record corn imports tipped

Mexico is the world’s fifth-largest animal-feed producer, with the country estimated to have produced over 43Mt of rations for domestic beef, poultry, swine, dairy, pet food, and aquaculture production in 2023.

Over half of the animal feed includes corn, and output is estimated to have grown by 8pc year on year.

This has pushed feed and residual use of corn to a record 28Mt in 2023-24.

Add the food, seed and industrial consumption of 18.6Mt, which is relatively static due to high food prices, and domestic demand hits a record 46.6Mt in 2023-24.

The escalating demand profile is expected to see corn imports in Mexico’s 2023-24 marketing year increase to a record 21.1Mt, second only to China on the global trade table.

However, any further fall in winter cycle corn output will be reflected in higher import requirements as projected ending stocks are already very tight.

The US supplied more than 85pc of Mexico’s corn imports in the last calendar year, with geographic proximity, a sizeable exportable surplus and strong relationships pairing the US grain and Mexican livestock sectors the primary catalysts.

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