Mexico Battling Demand Dilemma, Rising Corn Prices

Cattle Network ^ | January 9, 2007

[A. Pole]

MEXICO CITY (AP)--Mexican legislators, producers, and consumers are battling with the government over how best to control the rising price of corn tortillas, a centuries-old staple of the Mexican diet.

Some lawmakers are calling on renewing price controls used in the past, while incoming economy secretary Eduardo Sojo says a better move would be to help farmers increase production.

Rising demand is a major factor pushing up corn prices, Sojo told a news conference Monday - in particular the fact that more U.S. corn is being diverted for the production of ethanol, instead of heading to Mexico’s consumer market.

Farmers also cite rising production, transportation and energy costs.

Regarding the more structural changes impacting demand, Mexico’s government has “to design programs, together with producers and farmer organizations, to increase productivity and the production of corn,“ Sojo said.

The economy and agriculture ministries are devising plans to support Mexican corn farmers through the “correct incentives,“ he said, adding that he wasn’t sure if that would involve subsidies.

Sojo rejected the possibility of price controls, which have been called for by some farming groups and legislators, saying they would create disincentives for production and hurt market efficiency.

Corn prices in Mexico have climbed sharply over the past year following widespread speculation in markets for both locally produced and imported grains, due to uncertainty about how much U.S. corn would be available for Mexican importers.

Prices for white corn used to make tortillas have been hit the hardest.

Although local corn prices are typically volatile around harvest time, which mostly falls in the second half of the year, traders say the farm gate price for white corn saw an unprecedented rise of up to 45% in 2006 compared with the year-ago levels in the Mexican market.

Grains traders have forecast tortilla prices to rise between 20% and 25% during the last quarter of 2006 and the first quarter of 2007.

[A. Pole]

Corn prices in Mexico have climbed sharply over the past year following widespread speculation in markets for both locally produced and imported grains, due to uncertainty about how much U.S. corn would be available for Mexican importers.

Amazing! After cheap NAFTA corn ruined millions of Mexican farmers, forcing them to flood cities and USA in search of survival, the price of corn goes up? Who could expect that?

[janetgreen]

Perhaps all the Mexican illegal aliens who have snuck into America should return to help their country instead of staying here and sucking ours dry. Good deal for everyone.

[JohnD9207]

Perhaps the illegals could swap a few bucks oops, pesos on the way out to prop up the price of corn. Might help pay for those GPS units the corrupt officials want to hand out to make sure the bums, oops illegals, I mean undocumented workers don't get lost.

[rpgdfmx]

And exactly how are they to make a living? ADM, Cargill, etc. are the engines for Mexican migration, not some secret plan to make you eat tortillas.

[Kitten Festival]

I guess it's tough tacos for the Mexicans. This just goes to show the stupidity of making ethanol out of corn. Corn is food and if the Mexicans eat this stuff they should have the right to buy it from us to eat in Mexico. Or they'll come up here and buy it.

[MarkL]

Maybe the reason that there's a shortfall in the amount of corn being sold by the US to Mexico might be that there's increased demand for corn tortillas here in the US, due to the fact that 10% of the population of Mexico is now here, as illegal aliens.

And of course, the first thought is to put price controls on corn... That'll take them straight from higher prices to shortages! Idiots!

Mark

[azhenfud]

Buy tortillas!

[GAB-1955]

I do. I cut out wheat and I've got my appetite under control. Thank goodness you can get good tortillas in the markets now. There's ONE benefit to immigration. Now for the debits... (oops, computer went down)

[STE=Q]

"Amazing! After cheap NAFTA corn ruined millions of Mexican farmers, forcing them to flood cities and USA in search of survival, the price of corn goes up? Who could expect that?"

Maybe the the Mexican people should stage a Mexican "corn" party? (Boston "tea" party)

[ZOOKER]

Now, I'm not an economist, but some sharp financial wizard might say that too many dollars are chasing too few goods.

To clarify, I might suggest that when workers migrate out of the country for higher wages, then send dollars home (a LOT of dollars, relative to the local economy), prices are bound to rise.

Those who don't have relatives in del Norte could be in trouble...

[A. Pole]

Those who don't have relatives in del Norte could be in trouble...

And will be under more pressure to move north. When you remove economic barriers between nations, people will tend to migrate and merge.

[ApplegateRanch]

No tortillas?

Permítales comer pan!

[lucysmom]

We don't like barriers, but we don't like migration and merger either.

[janetgreen]

And exactly how are they to make a living?

It is not America's responsibility to provide jobs for Mexico. The fact that Bush and Fox were so cozy didn't help either country, did it?

[TKDietz]

That was my first thought. They've been complaining like crazy that our subsidized corn has been selling for less than it costs them to grow it. They've been saying we're putting their farmers out of business, and have been particularly upset because corn is such a vital part of their culture. Now when corn prices go up, they're complaining about that.

"Corn prices in Mexico have climbed sharply over the past year following widespread speculation in markets for both locally produced and imported grains, due to uncertainty about how much U.S. corn would be available for Mexican importers."

Speculation, that's the operative word here.

[A. Pole]

They've been complaining like crazy that our subsidized corn has been selling for less than it costs them to grow it. They've been saying we're putting their farmers out of business, and have been particularly upset because corn is such a vital part of their culture. Now when corn prices go up, they're complaining about that.

You would complain too! Now their farm are destroyed and they became dependent on US agribusiness (the later employing their displaced farmers as "undocumented" laborers) and their food costs more. Typical bait and switch tactics.

[SunkenCiv]

This isn't related to NAFTA, it's related to the price of corn being high in the US, and due to the push toward ethanol (E85 fuel etc) this problem isn't going away. There are other problems in Mexico which are also partly to blame:

Mexico to legalize drugs, Measure decriminalizes personal use
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http://www.freerepublic.com/focus/f-news/1625661/posts

[TKDietz]

I don't think there were any bait and switch tactics being employed. It's just the way things worked out. There really hasn't been a corn shortage. Supplies were a little lower than expected mainly because of drought. But the main thing moving prices now is speculation. There is a fear that corn supply will be really tight because so much corn is expected to be used by the ethanol industry. Farmers in this country are likely to plant several million more acres this year than last and if the weather is good and yields are as high as they could be corn prices will tank again and Mexican farmers will be in the same boat they've been in in years past. The market will be flooded with cheap American corn. It is winter time in Mexico too though. They can gear up and plant more corn when planting season comes. The difficulty of course will be knowing how much to plant. Corn futures may be trading high now, but will corn prices be high come next harvest? We'll see.

[TKDietz]

What the heck do Mexican personal use drug laws have to do with the price of corn? That's their business. When Mexican organized crime bring drugs in this country and distribute them it's our business, but that's an entirely different topic.

As for the price of corn in this country being high, I would argue that it's still actually pretty darned low. Corn prices are up some now, mostly because of lower than expected yields last year caused by drought conditions and speculation about how much corn the ethanol industry will use, but in the grand scheme of things corn is still cheap in this country when you look at historical prices and factor in inflation. Corn prices had been staying around the same with minor fluctuations for a decade or more even though everything else has gotten more expensive, including the costs involved with growing the corn and getting it to market. What's happened is that American farmers have been perhaps too good at growing corn. They've overproduced and that has driven prices down. The government is in large part to blame for this because they've used subsidies to ensure that corn farmers make it even though they keep driving prices down. The government will set a target price for corn, a price they think farmers need to get to stay in business, and then when the market price is lower than the target price they'll pay subsidies on every bushel of corn produced to make up the difference between the target price and the actual market price. This encourages farmers to overproduce.

The price of corn going up is actually not such a bad thing. The higher the price of a bushel of corn, the less the government will pay in crop subsidies. Not only that, but farmers in other corn producing nations that complain about our subsidized corn flooding foreign markets will actually be in a lot better shape now because they will be able to get a fair price for their product. Then maybe, just maybe, we'll see less migrant workers form Mexico coming up here for work because their will be work for them at home.