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Mexico Agribusiness Report Q1 2011
Business Monitor International, Dec 2010, Pages: 80
Business Monitor International's Mexcio Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Mexcio's agribusiness service.
BMI View: 2009/10 was a difficult year for many Mexican agricultural producers, due primarily to the adverse weather conditions that caused widespread crop damage. The 2010 Atlantic hurricane season was an extremely active one, with large parts of the country battered by heavy rains brought about firstly by Hurricane Alex, which hit northern Mexico in June-July 2010 and later by Hurricane Karl that swept over the southern states and Veracruz in September. The rains have led to year-on-year (y-o-y) dips in production for many important crops, including corn, sorghum, sugar, barley and soybean. Coffee production has also fallen, with output dented by cold weather early during the harvest, which disrupted the flowering process.
In contrast, the livestock and dairy sectors have both shown signs of recovery from the economic recession. These gains promise to continue in 2010/11. Domestic demand is also beginning to pick back up - in September 2010, consumer confidence was almost back up to pre-crisis levels. BMI anticipates per capita GDP to have risen to US$8,283 in 2010, up from US$8,155, while real GDP growth has bounced back to 4.4% y-o-y. This bodes well for the agricultural sector. However, we caution that risks may yet be weighted to the downside, as the economic recovery has been driven by strong growth in the manufacturing sector. With external demand for Mexican goods set to cool into 2011 as the US economy falters, consumer demand could fall back once again. In addition, real GDP growth is set to cool to the 3% mark, held back by the high cost to the economy of the serious organised crime problems that continue to ravage the country.
Key Forecasts
- We have revised down our forecast for the 2010/11 rice harvest, owing to storm damage from heavy rains caused by Hurricane Karl, in addition to a reduction in the area planted. We now see output dropping to 160,400 tonnes, a fall of 10.8% y-o-y.
- Our estimate for the 2009/10 corn crop is also down on our previous outlook due to storm damage to crops. We see the 2009/10 harvest reaching 21.41mn tonnes, a y-o-y drop of 9.8%. However, we see corn production rebounding in 2010/11, and have pencilled in an increase of 11.3% y-o-y to take output to 24.32mn tonnes. Production is aided by good rain fall during the planting season.
- We have revised down our forecast for the 2010/11 wheat crop this quarter due to insufficient water supply during the planting season. We now anticipate that production will fall back to 3.94mn tonnes, down by 7.8% y-o-y. However, wheat consumption is forecast to pick back up in 2010/11, as disposable incomes rise and demand increases from the bakery and confectionary industries. We see demand growing by 2.9% y-o-y to reach 6.21mn tonnes.
- Pork production has been harder hit by the difficult economic climate than we previously forecast. We now believe that production stagnated at 1.16mn tonnes in 2009/10, as demand was slower to recover than previously anticipated. We see production beginning to recover in 2010/11 as the economy improves and have pencilled in output of 1.18mn tonnes, a y-o-y increase of 1.9%. Over our forecast period to 2014/15, we expect growth in pork production to remain distinctly sluggish, expanding by 7.0% from 2009/10-2014/15 to 1.24mn tonnes. Growth in this sector will be hindered by cheap pork imports from the US, in addition to the perception of pork as a less healthy option than poultry and other meat products.
Key Trends And Developments
- In November 2010, Swiss food company Nestlé announced plans to increase investment in its soluble coffee plant in Toluca, outside Mexico City. Nestlé stated that it would invest US$70mn by the end of H111, to make the Toluca site the world's largest soluble coffee plant. The expanded factory will have the capacity to produce 42,000 tonnes of Nescafe Clasico instant coffee. Around 70% of the coffee currently used is purchased from Mexican farmers, with the remaining 30% imported. However, Nestlé has revealed its intention to increase the proportion sourced from local farmers to 80-90% by boosting a local planting programme. Antonio Nuñez, a Nestlé vice president in Mexico, stated that the company will help growers to plant 5mn new arabica and robusta variety coffee trees before the end of 2015 and will open a new plant science centre in southern Mexico to experiment with higher-yielding breeds in 2011.
- In October 2010, it was reported that the first trials of genetically modified (GM) corn had been successfully completed in three states in northern Mexico. Monsanto and Pioneer Hi-Bred, the agricultural unit of DuPont, carried out the trials, the first since the moratorium on GM corn was lifted by the Mexican government in October 2009. Companies with experiments verified as safe are expected to subsidise farmers to launch pilot projects in larger areas in the states of Sinaloa and Tamaulipas in 2011.
- On September 28 2010, the Mexican Rice Council held its first 'Día Nacional del Arroz' in Mexico City. At the event, Francisco Mayorga Castenada, Secretary of Agriculture, unveiled ambitious plans to become self-sufficient in rice by dramatically increasing the acreage dedicated to the crop in the southern states of Mexico. Per capita rice consumption has grown strongly, with consumption growing from 6.30kg per person in 1999 to an estimated 7.23kg in 2010, according to figures from the Food and Agricultural Policy Research Institute. However, BMI sees Mexico's reliance on imported rice continuing for the foreseeable future.
?? In late September 2010, the Mexican government authorised a further 100,000 tonnes of sugar imports, in order to balance domestic sugar availability and aid sugar price stabilisation. The move came in response to concerns about restricted sugar supplies during Q410, due to low sugar inventories and low production levels during this period. 10,000 tonnes is designated to be imported from Nicaragua. However, Mexico's existing sugar inventory of just over 77,500 tonnes is set to be used to cover the bulk of the quota. This would reduce the pressure on the country to import sugar from constrained international markets.'
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