Mexico Prepares Plan To Ditch U.S. Grain Imports As NAFTA Showdown Looms

Tyler Durden's picture

America's Midwest farmers can't seem to catch a break.  First, an epic collapse of grain prices over the last couple of years have threatened to wipe out family farmers (see "Midwest Farm Bubble Continues Collapse As Farm Incomes Expected To Crash In 2017") and now, thanks to the pending NAFTA showdown threatened by President Trump, Mexico, the single largest importer of U.S.-grown corn, has announced plans to find alternative grain sources in South America.  Per Bloomberg:

The Consejo Coordinador Empresarial, one of the nation’s top business chambers, is examining countries such as Brazil and Argentina to add new sources for soy, corn and wheat, according to Juan Pablo Castanon, the group’s president. Exports from those countries could help Mexico adjust to the difficulties that a Nafta renegotiation might present, he said.

 

“The renegotiation might bring increased costs to imports, and our own exports might be hurt, so we need to find new markets,” he said in a phone interview, adding that the group’s efforts are still in the initial stages. The chamber, established in 1976, represents the country’s main agricultural, industrial and financial industry organizations, among others.

 

"We’d like to keep the trade deal as it is, but right now we have to look for alternative producers and Brazil and Argentina could work,”
Castanon said.

Of course, any move by Mexican businesses to import raw materials from other countries could hit U.S. farmers hard. Mexico is the largest buyer of U.S.-produced corn, spending $2.5 billion in the 2015-2016 season, ahead of Japan’s $1.8 billion, according to the U.S. Grains Council. Moreover, Mexico has spent $800 million on U.S. corn so far in the current season. 

Corn

 

Of course, grain imports aren't the only raw materials for which Mexico is actively looking for alternative sources as Sigma Alimentos SA, Mexico's meat-packing conglomerate, is also looking to Brazil and Chile as alternative supply sources.

The push is not limited to grains, Castanon said. Other imports such as meat are also being considered. “An economy as important as Mexico’s needs to have secure supply sources on many fronts,” he said.

 

Sigma Alimentos SA, the meat-packaging unit of Mexican conglomerate Alfa SAB, is looking into countries such as Brazil and Chile as new sources of raw materials, Chief Financial Officer Eugenio Caballero said on a call with investors last week.

 

Switching suppliers isn’t as easy as flipping a switch. Mexico depends heavily on rail for imports from the U.S. and Canada, which wouldn’t work for goods from South America. But Mexico’s ports could handle imports from the south, and the benefits would outweigh the costs, Castanon said.

 

“We need to open new doors,” he said. “As the trade talks progress, we’ll see how we need to make use of them.”

So where does that leave the American farmer? Well, not in a great spot given the already dire position they're in.  For those who missed it, below are some stats from the USDA detailing the financial condition of the American farmer.

* * *

Real farm incomes in 2017 are expected to sink below 2010 levels which represents a 36% decline from the recent peak and a 14% decline since 2015.

Farms

 

Meanwhile farm debt continues to rise at an astonishing rate...

Farms

 

While farmer leverage has spiked to the highest level since at least 1960.

Farms

 

And of course, lower incomes means less money to spend on shiny new John Deere tractors with equipment capex expected to decline 35% compared to 2015.

Farms

 

And finally, farmer returns have crashed to the lowest levels ever.  We're not sure about you but a 2.1% ROIC seems a "little low" even in our current rigged interest rate environment.  So, there's only a couple of ways to fix that problem...either commodity prices have to recover quickly or farmland prices need to come down substantially.  Which do you think will happen first?

Farms

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Fireman's picture

The Mexican mouse squeaks back. Oh dear this could get very nasty!

MarkD's picture

But but but the expeeerts said they need us more than we need them and that they will buy more American made products cuz they love us.

Vatican_cameo's picture

 

This is good news.  We only export 13% of our corn crop.  40% goes to ethanol (for diluting gasoline and screwing up gasoline-powered vehicles) and the rest is used as feed for livestock.  Quit selling corn to the Beaners and ditch this ethanol crap and the price for food will drop.  Feed has become very expensive since the advent of ethanol.  It's a "win-win" situation for this country.  We get a reduction in food prices and the Mexicans get a kick in the balls.  Where is the problem?

detached.amusement's picture

I'm just sitting here thinking, WTF does mexico import CORN for, they cant grow enough to feed themselves???

AurorusBorealus's picture

People who live in countries with $20 trillion USD in debt should not throw stones.  That wall may do more to keep you locked in than keep them locked out in the future.

cossack55's picture

Good luck competing with China for land use

MK13's picture

Tax repatriations, Wall paid in no time. Since 70-80% of Mexico imports go to US and repatriations major source of Mexican income - no negotiating power. Let's make a deal, squeak, squeak, mouse..

Offthebeach's picture

Easy peasy. $20 trillion, poof, disappears. Gone. I,O, Us are in a envelope, in a drawer at Federal Reserve. Never to be recalled, paid back.
Actually, in a way, it has been paid, as nothing is free, as those $20 trillion dollars has been a tax on the price of all goods and services wherever dollars as, which is worldwide. So, basically, everyone in the world paid for it.

wildbad's picture

good. maybe now mwxico will go back to non-GMO maiz and real competition will rear its non-ugly head again.

Amicus Curiae's picture

argentine corn is majority GMO so thats not going to  improve their health.

usual gmo spread contaminated everything

StychoKiller's picture

Strange!  Why not ask their compadres in Venezuela for some food?  :>D

Mimir's picture

You are probably not farmer, are you !!

okyoureabeast's picture

Woop de dee. The wetbacks will pay way more for SA foodstuffs. 

Mexico is screwed plain and simple. The farmers are fine.

wrwk_ec's picture

There was a Grant's Interest Rate Observer article on this a couple years ago. Talked about John Deere and levels of farmer debt...pm me ill send it

Cardinal Fang's picture

Plus farm equipment nowadays has all sorts of sophisticated electronics that cannot be repaired by the farmers themselves...which drives up their costs and debt enslavement

beijing expat's picture

This would be a great thing. These grain imports have wiped out Mexican small holders and that's why they all went north.

Same thing in Haiti. I flew over it a few months ago and was really surprised the fields had mostly been abandoned. Farmers gave up and moved to the hell that is PAP.

It was good for Cargill though.

css1971's picture

Unexpected 2nd order effect of US Farming subsidies...

 

Cutting the subsidies (likely to happen under Trump) also starts off a new commodity boom.

Offthebeach's picture

US farmers been subsidised and crying since the Erie Canal opened up.

cowdiddly's picture

Maybe you should try you hand at growing corn at 3 bucks a bushel. Don't fuck up now and add a pound to much ammonia or make one to many spray trips cause she's tight even when the weathers right..

cowdiddly's picture

Maybe you should try you hand at growing corn at 3 bucks a bushel. Don't fuck up now and add a pound too much ammonia or make one to many spray trips cause she's tight even when the weathers right.

You don't make a profit every year..

sinbad2's picture

Australian farmers make a buck without subsidies. The huge subsidies the US and EU pay farmers distorts the market, and leads to inefficient farming practices.

Red Raspberry's picture

If the EPA pulls the ethanol mandates then you will really have a reason to cry.

Sanity Bear's picture

Maybe you should try your hand at a business not subsidized by government.

HowdyDoody's picture

"Totally predictable and intentional 2nd order effect of US Farming subsidies..."

TFTFY

IntTheLight's picture

Haiti? That place is a dump. The problems they have are 100% due to demographics. Nothing to do with trade policy.

orangegeek's picture

Sounds good - buy more expensive imports like all good marxists would.

 

Long tacos.

sinbad2's picture

Isn't the US subsidizing grain production sort of Marxist?

SoDamnMad's picture

With as crazy as the weather has been around the world, somebody is going to starve.

Australia has been hot as hell. El Nino coming one day, La Nina the next.  Will the monsoon become early of late to Indian farmers who have no cash to buy seed.  Locusts wide-spread in S Russia.  Ukraine, well that says it all (I guess you can plow the country with tanks).  Mugabee doing just fine at 93. I heard he thinks growing tulips is profitable.

MK13's picture

It's called the weather. And if they are starving they need to fix their own governmental representatives on pikes and fix things - not illegally hop somewhere else so then can be taken care of.

Greatest libtard falacy - there aren't enough resources in US to take care of all. Try liberals - and there won't be any resources left for your voting base.

johnnycanuck's picture

Nafta caused the huge influx of illegals from Mexico into the US.  Mostly due to US agra giants pushing corn and hogs into the Mexican market and driving the traditional farmers and their support mechanisms out of business.  Just look at the data on numbers of illegals per year and or the timeline beginning with Nafta's implementation if you're not aware of this.

Augustus's picture

When US grain prices are low the Mexicans holler abut not getting enough for their own crops.

When US grain prices are high the Mexicans holler about their low income populations not having enough income to buy food.

Peasant agriculture is not a good life for the peasants undern modern agriculture.

Mimir's picture

Confirming prospects of a record harvest, FAO’s estimate of world cereal production in 2016 has been lifted further to 2 592 million tonnes, up 15 million tonnes (0.6 percent) from December. This month’s revision mostly reflects larger-than-expected wheat harvests in Australia and the Russian Federation, combined with upward adjustments to world maize production, almost entirely due to an increase in China’s estimate.

AurorusBorealus's picture

Welcome to the Mercasur Mexico.

BritBob's picture

Just another typical Latin American leader.  Blinded by rhetoric and short on facts...

 

President Mauricio Macri and Enrique Peña Nieto of Mexico, signed a joint declaration which highlighted "recent developments" between Mercosur and the Pacific Alliance and assume in common guidelines to strengthen commercial and political relationship that includes the search for common positions in the G20, strengthening the OAS and a new Mexican support "to the legitimate sovereign Argentine rights" over the Malvinas Islands. (El Litorial Com Ar 29 June 2016)Mr Presidente – the Falklands have never belonged to Argentina.

https://www.academia.edu/17799157/Falklands_-_Some_Relevant_International_Law

 

Vinividivinci's picture

No worries...plenty of other countries will buy american grains.
The mini ice age we're entering has already affected crop yields
in some countries. They'll pay premium for wheat, so, adios, mexico.

Offthebeach's picture

Plus we are leaders in diabetes drugs.  So chow down on those carbohydrates!

ATPCommish's picture

Hah yea.. Better keep those generics from the global marketplace baby! 

Mimir's picture

False fact alert

2016/17 (FAO)

Confirming prospects of a record harvest, FAO’s estimate of world cereal production in 2016 has been lifted further to 2 592 million tonnes, up 15 million tonnes (0.6 percent) from December. This month’s revision mostly reflects larger-than-expected wheat harvests in Australia and the Russian Federation, combined with upward adjustments to world maize production, almost entirely due to an increase in China’s estimate.

king leon's picture

Russia now the worlds biggest producer of grain, thanks to EU sanctions.

johnnycanuck's picture

Umm, the problem with your theory is not everyone wants US grown corn because they don't want GMO frankenfood.  I expect that has helped Russia become no 1 wheat exporter as they don't use GMO seed.

baldknobber's picture

What you and most people don't realize when you brag about other countries not using Gmo seed is this. They are just against US companies like Monsanto's GMO seed. They don't want their crops depending on foreign seed. They are all working on GMOs of their own. Not real popular , but true

johnnycanuck's picture

I suppose you could consider splicing branches from two different types of apple trees as genetic modification,  and I have no idea to what extent countries that reject GMO dabble in related research, but it appears clear they don't accept it as it is.   Monsanto of course is just one source of frankenseed, but has the worst reputation due it's past behaviour.  ie lots of people have watched Food Inc. Bayer from Germany is much larger but one hears little negative blowback about it's GMO endeavours.

It's not just food applications that can be used to measure GMO either, the push on cotton in India is a study unto itself.

baldknobber's picture

Bayer is trying to buy Monsanto, do you think they will do away Monsantos seed and their research? Or will the Eu suddenly become warmer to it when they have it? It's like nuclear weapons, everyone is againest them until they get caught up and have their own. The reason to fear GMOs is not that they are unsafe to eat, it is that if we create a giant mono culture of are basic foodstuffs we are asking for Biblical crop failure that will impact the entire world

Mimir's picture

The thing is, that GMO food has never been proved to be safe for consumption. Europe doesn't want it because of it - (apart from those which are authorized by the EU, as for example GMO maize MON 810 which is cultivated in five EU countries). 

If such food is sold in shops for consumption, Europeans want it clearlt labeled, so thay they can make their own choice to buy or not.

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baldknobber's picture

apart from those which are authorized by the EU

There is the rub isn't it? Do you trust one Gov and not the others

I also support labeling on all products

HowdyDoody's picture

Simple solution. Monsanto can sell their shit provided everything is labelled so the consumer can make their own choice. That's the free market.