US grains benefit from strong Mexican trade relations

U.S. grain producers fear trade fallout with Mexico, it's largest corn market, under the Trump Administration.

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In 2016, the United States experienced a record harvest of 387 million metric tons of corn. This trend is expected to continue due to ethanol production, an increased domestic demand for feed and grain exports. However, given the current political climate under the Trump administration, many are concerned about the future of trade.

Mexico is the No. 1 importer of U.S. yellow corn worldwide, surpassing Japan for the last two years, the U.S. Grain Council (USGC) reports. Mexico also ranks No. 2 in U.S. DDGS imports and brings in large volumes of U.S. barley and sorghum.

According to the U.S. Department of Agriculture (USDA), Mexican corn consumption is forecast to increase 1.6 percent during the 2016/2017 marketing year. “This increase is expected to be driven mainly by the expansion in the Mexican livestock and poultry sectors,” cites the GAIN Report.

Infographic: Grain, poultry and beef outlook 2016-2017

Traditionally, Mexico has imported 10 to 11 million metric tons of corn from the United States; however, in recent years, the country has imported record volumes — 13 million metric tons in 2015 and 14 million in 2016. This bump can be attributed to North American Free Trade Agreement (NAFTA), which quadrupled U.S. corn exports since its inception.

Ryan LeGrand, director of the USGC in Mexico, believes Trump will eventually realize the economic value of the U.S. agricultural sector, it’s crops and exports.

Ryan LeGrand USGC

Ryan LeGrand, USGC director in Mexico, says that the grain trade between Mexico and the United States is vital for both countries. | Benjamín Ruiz

“The relationship of bilateral trade between Mexico and the United States is so important for both countries that you cannot cancel [NAFTA],” LeGrand says. “Both economies depend on each other.”

In 2016, U.S. corn exports to Mexico totaled more than $17 billion.

More domestic production

In 2016, Mexico produced more corn than ever, hitting 15.4 million metric tons. Mexican domestic consumption is impressive. In addition to the poultry industry, “other livestock sectors are growing. Last year, Mexico exported more beef than ever, and pork exports to China, the largest market in the world, are starting,” LeGrand says. All this translates to increased grains demand.

Meanwhile, despite the disparities between the Mexican peso and the U.S. dollar, imports are increasing “and paying in dollars when the exchange rate goes through the roof.” (About 22 pesos per dollar when this article was written.)

“It’s been difficult,” adds LeGrand. “What has helped is that U.S. grain prices are very cheap. Imagine if we had current prices and an exchange rate of 15! We would import more.”

As for white corn, what is not used for human consumption is sold to the animal agriculture market.

Lagging sorghum imports

Though it grows 4 million metric tons of sorghum domestically, Mexico is also a major consumer of U.S. sorghum. However, in recent years the situation changed when China entered the global market due to soaring corn prices. The Chinese are willing to pay more for sorghum than Mexico so that has affected Mexican imports, LeGrand explains.

“But, for every metric ton of sorghum that Mexico does not import, it imports one metric ton of corn, and that's why we've seen a sharp increase in imports of yellow corn for animal feed,” LeGrand explains. In 2016, U.S. farmers grew 12 million metric tons of sorghum.



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