The January 1 beginning of free trade in corn between the U.S. and Mexico caused some of the previous distortions in corn trade to disappear as buyers responded rationally to new opportunities. Projections of production and use for the 2008 crop marketing year show no change to Mexico’s continued growth in production and use of corn and increased imports from the U.S.
According to Mexican import statistics as reported by the U.S. agriculture attaché in Mexico, Mexican corn imports from the U.S. increased sharply in January 2008 to 801,000 metric tons (MT) from 56,900 MT in January of 2007, but there are three market reasons for this. Under the previous system of import quotas the Mexican government was usually not prepared to issue permits to import corn in January. Importers planned for this by importing extra corn in November and December of the previous year. In November and December of 2006 Mexico imported a total of 2.4 million metric tons (MMT) of corn compared to only 1.6 MMT for the same months of 2007; the difference is roughly what was imported in January 2008.

One way to avoid the previous slowness of the permit system was to import cracked corn which entered tariff free. In January 2007, 466,300 MT of cracked corn were imported compared to only 16,300 MT in January 2008. High sorghum prices also led to a modest reduction in sorghum imports from 58,100 MT in January 2007 to 43,100 MT in January 2008. When these changes are netted out, corn imports were actually lower than expected based on historical patterns of imports. Corn imports will continue to exceed year earlier levels because cracked corn imports are expected to continue to decline and sorghum prices will remain high until wheat and coarse grain crops are harvested in Europe this summer and fall.

Free trade in corn is also not likely to change longer-term production and consumption in Mexico. The March 11 estimate by the Foreign Agriculture Service of USDA for Mexican corn imports for the October-September 2007-08 marketing year show corn imports of 9.7 MMT compared to 8.9 MMT last year and 500,000 MT less than forecasted in February. The lower shipments of cracked corn are not expected to be totally replaced by higher corn shipments based on movements so far in this marketing year. Shipments of distillers dried grains with solubles (DDGS), a competitively priced feed co-product of dry mill ethanol production, have increased to replace some of the cracked corn imports. Corn imports are expected to increase again in the 2008/09 marketing year.

The U.S. agriculture attaché in Mexico expects the corn area harvested in 2008 to be up slightly to 18.4 million acres, with total production also up modestly to 22.75 MMT (894 million bushels). As usual, most of the production will be white corn for human consumption, even though the government is encouraging production of more yellow corn for livestock and poultry feed and processing. Sorghum area harvested is expected to be up 2.9 percent to 4.45 million acres due to higher market prices for feed grains compared to crops like dried beans. Sorghum has an advantage over corn because it is more resistant to dry weather and has a shorter crop cycle. These are important because 70 percent of the sorghum and 65 percent of the corn in Mexico is non-irrigated. Sorghum also yields better on less productive land which is what is expected to shift from other crops.

Corn consumption in 2008/09 is expected to increase by 2.1 percent to 34.1 MMT. The population will grow by 1.1 percent and livestock and poultry feed demand should remain relatively strong, led by a 3.5 percent increase in poultry production. Human consumption of corn and tortillas still accounts for 47 percent of the average per capita caloric intake, but tortilla consumption did fall by 17 percent from 1998 to 2004. Mexico’s first corn ethanol plant will be operational in May. The 30 million gallon per year plant will use about 11 million bushels per year of white corn and sorghum and produce 100,000 MT of DDGS. The ethanol will likely be exported to the U.S.

This smooth transition to free trade in corn did not come as a surprise. In recent years the government of Mexico allowed over quota shipments of yellow corn to enter with little or no tariff to feed its growing livestock and poultry industries. Timing issues were expected, but those are now done.

This successful transition will not reduce arguments in Mexico about the need to reduce corn imports from the U.S. to protect limited resource farmers. According to government data, Mexico had 1.87 million corn producers in 2004, with 525,000 producers with one hectare (2.47 acres) or less, 522,000 with 1-2 hectares and 544,000 with 2-5 hectares. These producers are the least likely to irrigate and use improved seed varieties and fertilizer. The U.S. agriculture attaché’s list of challenges in building integrated supply chains to urban consumers include long distances from fields to consumption centers, reliance on expensive trucking with inadequate road infrastructure and lack of direct railroad links at key transport hubs. This contrasts with imports from the U.S. that are transported by railroads and ships.

The Mexican government recognizes that productivity of corn production needs to improve and marketing systems upgraded so Mexican corn producers can meet the demands of urban consumers and the growing livestock and poultry industries. The average corn yield this year is expected to be about 50 bushels per acre and the government wants to increase that to 80 bushels over the next four years. The doubling of corn prices over the past two years should stimulate needed technology changes. Improving the marketing system is a longer-term challenge, but is the real solution to using Mexico’s resources to efficiently produce corn while relying on the U.S. as a source of corn for livestock and poultry feeding and processing.