Markets

Mexican grain imports increasing, but so too is food inflation

Grain Brokers Australia, October 19, 2021

The Mexican diet is heavily reliant on corn-based foods such as tortillas Image: CNA instagram

MEXICO has been on a big grain buying spree in recent weeks, booking up substantial volumes of wheat and corn out of the United States as the country continues to increase its grain imports and dependence on foreign countries to meet growing domestic demand.

The Mexican diet is heavily reliant on corn-based foods such as tortillas. Corn accounts for a significant proportion of the population’s daily caloric intake, a custom that emerged thousands of years ago. That is why corn is considered as much a food grain as it is a feed grain to Mexicans.

The price of tortillas is a significant economic barometer for the Mexican economy, and the high cost of imports has the government considering the relaxation of duties on imported corn. Such a move would go a long way toward appeasing unrest amongst the general population as the economy struggles to recover from the COVID-19 downturn.

The current high-priced commodity environment is great for the Mexican farmer, but the increased reliance on imports makes food inflation a massive challenge for the government. The cost of food in September 2021 was 8.8 per cent higher than a year earlier.

Biggest purchaser

Mexico was the world’s biggest corn importer until China in 2020-21 increased its buying.

In the week to September 30, Mexico was the biggest purchaser of corn from the US, purchasing 801,400 tonnes, almost 64pc of total US sales for that week. Wheat acquisitions for the same week were 89,100t, with Mexico again the biggest customer with almost 27pc of total sales. Mexico also took top billing in the rice stakes, booking 38,200t from the US, or 52pc of the week’s trades.

The strong purchasing pattern continued in the week to October 7, with the USDA reporting corn sales to Mexico at 790,20t, or 76pc of the week’s reported US corn business. Wheat transactions were higher than the previous week at 127,800t, second to The Philippines on the total US sales listing. Weekly US rice sales were 33,900t, with Mexico scooping up 87pc or 29,600t.

The United States is expected to remain the principal supplier of grains to Mexico in the 2021-22 marketing year due to logistical advantages and a long history of bilateral trade. That said, Mexico has expanded its sources in recent years as major producers actively seek to challenge Uncle Sam’s market dominance into its southern neighbour.

Mexico’s National Agricultural Council reported 65pc of domestic wheat needs in 2020 were met by  imports compared with 55pc in 2006. Over the same 15-year period, the proportion of corn demand met by imports increased from 26pc to 37pc. For rice, the ratio rose from 70pc in 2006 to 83pc last year.

The increased imports come despite a concerted government incentive scheme to encourage small farmers to increase the production of basic grains such as wheat and rice. While these schemes are slowly having the desired outcome, the increase in output is much slower than the burgeoning demand.

The USDA Foreign Agricultural Service (FAS) September grain and feed update increased wheat production in Mexico by 200,000t to 3.2 million tonnes (Mt) compared to the May estimate on the back of favourable seasonal conditions. This is 100,000t higher than the official USDA estimate and 235,000t, or 8pc, higher than the 2020-21 crop. However, it is still 1Mt lower than the record crop of 4.2Mt in the 2008-09 season.

Wheat is deemed the second most essential cereal in the Mexican diet. It represents 40pc of total household expenditure on cereals and provides around 10pc of the total calories in the Mexican diet. Primarily driven by population growth, wheat demand for human, seed and industrial use is forecast to increase by 1.4pc from the previous marketing year.to 7.1Mt in 2021-22.

Demand for wheat from the stockfeed sector is forecast to increase by 50pc to 300,000t. While relatively small compared to the demand for human consumption, the increase does reflect a higher inclusion rate in animal rations, particularly for the pork sector, at the expense of corn.

Relatively low carry-in stocks and the higher demand has pushed projected wheat imports up to 5.1Mt, 8pc higher than in 2020-21, but still 5.3pc shy of the record 5.37Mt imported in 2016-17. At 3.46Mt, Mexico was the largest market for US wheat in the 2020-21 season, just ahead of China on 3.21Mt.

FAS in September projected Mexican 2021-22 corn production unchanged from its May report at a record 28Mt, up 1Mt on its previous 2021-22 estimate. However, the 2020-21 production number was revised higher by 200,000t to 27.2Mt based on more complete data from the Secretariat of Agriculture and Rural Development (SADER). The planted area is up 2.2pc to 7.3 million hectares.

Harvest of this year’s corn crop is ahead of average, with yields to date a bit better than expected, especially given the dry conditions in the Northern Plains this growing season. As of October 8, around 41pc of the crop had been harvested, compared to 29pc at the same time last year and a long-term average of 31pc.

The diet is heavily reliant on corn-based foods such as tortillas…corn is considered as much a food grain as it is a feed grain to Mexicans.

Domestic demand for corn is forecast at 44.2Mt in 2021-22, an increase of 500,000t compared to the previous corresponding period. The food consumption component is unchanged at 18.2Mt or 41pc of total demand. Feed demand makes up the balance at 26Mt, up 500,000t on the 2020-21 figure, matching the growth and bullish outlook for the stockfeed demand, particularly from the poultry sector.

This has pushed projected imports up to a new benchmark of 17Mt, 3pc or 500,000t higher year on year, with the trend expected to continue while production increases lag the demand curve.

 

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