Mexico: Well-suited country to large-scale agricultural production

20 May 20198 min reading

“Mexico is the world’s 11th-largest agricultural and livestock producer, and the 3rd-largest in Latin America. The agribusiness industry in Mexico has been in continuous and steady expansion, with the agribusiness landscape driven in part by strong consumer demand and a steadily growing middle class. With a large land mass and a diverse range of climates, Mexico is well-suited to large-scale agricultural production.”

Mexico is the most populous Spanish speaking country in the world. It is a market of over 127 million people, the tenth largest population in the world. Its USD 1.1 trillion economy makes it the second largest economy in Latin America and the 15th largest economy in the world. Mexico has a large, diversified economy that is linked to its deep trade and investment relations with the United States.

Mexico is a member of the World Trade Organization (WTO), Asia-Pacific Economic Cooperation (APEC), the G-20, and the Organization for Economic Cooperation and Development (OECD). It has more free trade agreements (FTAs) than any other country in the world—12 FTAs covering 46 countries—which include the European Union, European Free Trade Area, Japan, the Pacific Alliance, Israel, and ten countries in Latin America.

LATIN AMERICA’S 3RD-LARGEST AGRICULTURAL PRODUCER Agriculture accounts for 3.42% of Mexico’s GDP and employs over 12.97% of the country’s active population. Mexico is the world’s 11th-largest agricultural and livestock producer, and the 3rd-largest in Latin America. Mexico ranks among the world’s largest producers of coffee, sugar, corn, oranges, avocados and limes. Cattle farming and fishing are also important activities in the food industry.

The agribusiness industry in Mexico has been in continuous and steady expansion, with the agribusiness landscape driven in part by strong consumer demand and a steadily growing middle class. With a large land mass and a diverse range of climates, Mexico is well-suited to large-scale agricultural production. The highly-fragmented state of Mexican farming leaves significant room for consolidation and increasing yields.

The United States remains Mexico’s principal agricultural trading partner, receiving USD 25.5 billion, or almost 78 percent, of Mexico’s total agricultural exports.However, Mexico has been active in looking for alternate sources of supply given bilateral trade uncertainties.

MODEST GROWTH EXPECTED FOR GRAIN PRODUCTION The United States Department of Agriculture (USDA) forecasts the grain production in Mexico to grow modestly in marketing year (MY)2019/20, driven in part by new government programs incentivizing small farmers to produce basic grains. However, as these programs are still in their initial phases, it is not clear how they will operate and how strong of an impact they may have on production. Here is the summary of the USDA’s March GAIN report for Mexico:

Overall feed grain demand is expected to continue growing steadily at approximately three percent in MY 2019/20. Corn continues to be the preferred feed grain in Mexico, given low international prices and nutritional characteristics. Meanwhile, demand for grain for human consumption is forecast to grow more slowly, around the level of population growth.Mexico continues to be a major importer of basic grains. In MY 2019/20, imports are expected to continue their modest growth to meet growing demand for feed and food grains.

SHIFT FROM WHEAT TO CORN PRODUCTION Mexico has approximately 28,000 wheat growers, focused heavily in the northern states of Sonora, Sinaloa, and Baja California. The MY 2019/20 wheat crop is expected to be relatively strong at 3.1 million metric tons (MMT). Producers note that relatively low prices for wheat have encouraged many growers to shift from wheat to corn production in the past few years. Corn has higher yields and farmers therefore see it as an attractive alternative. In Sonora, for example, growers shifted approximately 30,000 ha from wheat to corn production in the past two years.

Wheat consumption is expected to increase modestly (approximately 1.4 percent) in MY 2019/20, driven primarily by population growth. Similarly, consumption increased in MY 2018/19 as bread product sales recovered following a consumption slowdown in MY 2017/18, attributed in part to advertising campaigns advocating a reduction in caloric intake. Total consumption is expected to remain stable at 7.7 MMT over all three marketing years.

THERE ARE 85 MILLS IN MEXICO Mexico has several distinct wheat markets. In the southeast of Mexico and the Bajio region, millers and bakers typically use domestic bread wheat, both due to favorable logistics and regional bread preferences. In central Mexico, including the Mexico City metropolitan area, the baking industry prefers high-protein flours, which facilitates production of the crusty, hollow breads consumers in this region prefer. In both Mexico City and in much of northern Mexico, it is logistically easier to use imported wheat.

Throughout Mexico, there are currently 85 mills owned by eleven major countries. These mills continue to modernize with more efficient equipment, and older mills are being replaced. Installed processing capacity grew to 9.4 MMT of wheat, though currently only about 6.6 MMT of this capacity is in use.

And total wheat imports are expected to grow slightly in MY 2019/20 to 5.7 MMT. The United States continues to be the largest supplier of wheat to Mexico, followed by Canada. However, Mexico has diversified its sources of wheat over the past several years, with secondary suppliers varying depending on price and quality. MY 2017/18 and the first half of MY 2018/19 saw a significant surge in imports from Russia, and to a lesser extent, Ukraine. This was driven by low prices for Russian wheat, and especially by low shipping rates from the Black Sea. In MY 2019/20, Mexico will be open to wheat shipments from Poland and Germany for the first time.

The Mexican milling industry notes that this will allow additional flexibility in terms of price and type of wheat that is available. In addition to price considerations, which are central for mills’ purchasing decisions, other influencing factors include protein content and homogeneity of shipments. Millers noted that different sections of a single shipment of U.S. wheat can have very different protein levels. On the other hand, protein levels in shipments from many other origins are more uniform.

SIXTH LARGEST CORN PRODUCER IN THE WORLD Mexico’s corn production forecast for MY 2019/20 (October to September) is 27.1 MMT, with an estimated 7.3 million hectares (ha) of harvested area. Corn production for the current 2018/19 fall/winter crop cycle is estimated at 7.7 MMT, which is very similar to the previous year. Post’s total corn production estimates for MY 2017/18 and MY 2018/19 have been revised upward from the USDA/Official estimate to 27.6 MMT and 26.7MMT.

Mexico is the sixth largest corn producer in the world, with approximately three percent of global corn production. Corn is still the largest crop in Mexico in terms of production and consumption. Production in Mexico is diverse, from large-scale and irrigated commercial operations to very small farms that grow local varieties on rain-fed plots for subsistence. Despite its relevance as the main crop, several factors continue to prevent an increase of corn production (as well as other coarse grains and cereals) in Mexico. The main restriction is low productivity. The FAS/Mexico forecast for total corn consumption for MY2019/20 is 44.7 MMT, an increase of 2.3 percent compared to previous year. Most of the increase is accounted for by greater feed use, although food use is also expected to rise slightly. Corn grain is used for tortillas and corn flour, representing a large part of the caloric intake of the population.

Private analysts have stated that the Mexican corn market differs from most other countries, as corn is primarily considered a food grain rather than a feed grain. Due to this difference, Mexico has developed two distinct corn markets: one for white corn mainly for human consumption, and one for yellow corn, which is mainly for feed use.

For MY 2019/20, total corn imports are forecast to increase approximately six percent over MY2018/19 to 17.8 MMT, to match the relatively bullish demand for feed consumption. Mexico’s corn exports are expected to remain unchanged at 1.0 MMT in MY2019/20, due to an oversupplied and very competitive international market.

Mexico is the world’s fourth largest producer of sorghum. The sorghum production estimate for MY 2018/19 (Oct-Sep) has been raised slightly to 4.7 MMT. And for MY 2019/20, production is initially forecast to increase to 5.0 MMT. Despite this increase, the expected production level is lower than the average obtained some years ago. After a high of 8.5 MMT in MY 2013/14, production decreased substantially.

And the forecast for sorghum consumption in MY 2019/20 is expected to increase slightly to 5.15 MMT. The poultry industry continues to be the largest consumer of sorghum in Mexico and uses the crop primarily in the form of mixtures and feed concentrates. Total sorghum imports for MY 2019/20 is forecast to remain stable at 400,000 MT, due to the bearish demand from feed millers and poultry and hog producers.

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