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Mexico’s drought destroys crops, endangers life, and opens corn market to U.S. farmers

Mexico to buy more U.S. corn. White corn for food demand is increasing. Crisis creating political pressure.

While recent and substantial rains are a promising sign that drought conditions are improving for much of the U.S. Southwest, a cold and dry winter in Northern Mexico has exacerbated conditions there with reports of wide spread famine, escalating food prices and extreme dry conditions that have forced the Mexican government to truck drinking water to nearly a half million residents in remote villages across six northern states where lakes and ground wells have run dry.

In addition, Mexican aid workers have been offering food rations throughout the winter to more than two million residents who are desperately clinging to life in a region that is experiencing its driest period on record. 

The drought is credited with destroying some 7.5 million acres of cultivable land in 2011 and is responsible for $1.18 billion in lost harvests and has destroyed about 60,000 head of cattle and weakened two million more causing a substantial spike in food prices.

In addition, officials say acute food and grain shortages caused Mexico’s imports to soar 35 percent last year and they could go even higher in 2012 as conditions worsen.

In a USDA report in late March, Mexico’s grain sorghum imports were expected to increase significantly this spring, and now corn has been added to the import list, providing U.S. growers, especially those in the Southwest, an expanded market for their crops.

“I think we are seeing farmers in the [Texas] Rio Grande Valley opting to grow more grain sorghum than cotton this year as a result of a strong market in Mexico,” reported Dr. Luis Ribera, agricultural economist at the Texas AgriLife Research and Extension Center at Weslaco.

Dr. Mark Welch, grain marketing economist with Texas AgriLife Extension in College Station, says while Texas is not a big corn producing state, he thinks shortages for grain and food corn will cause many U.S. growers to look hard at market potential in Mexico in the months ahead.

“We have been watching corn imports trend higher in Mexico over the last 25 years, but the recent spike related to the drought there is significant as it is not just yellow corn that is in demand, but white corn for food,” Welch says.

In Mexico the shortage of white corn is marked by higher food prices and a shortage in tortillas, a food staple for Mexican families.

“And this is not the first time we have seen an extreme shortage. The last time was in 2008 when corn shortages caused a tortilla crisis that resulted in riots and price limit controls by federal authorities. Coincidentally, this happened in another drought period,” he added. “In January of 2010 U.S. corn exports totaled about 20,000 metric tons. But this year that increased to 60,000 metric tons, so there is a market opening up for U.S. corn growers, especially those across the Midwest who were able to get an early corn crop in the ground.”

Food corn demand trending upward

Welch says even if drought conditions improve in Northern Mexico over the summer months, the trend for white corn imports are expected to trend upward.

“The demand for grain corn may be directly associated with the drought in Northern Mexico. Once conditions improve there we will see Mexican grain corn imports leveling off. But white corn imports have been trending up for several years, and it could be that a growing population base is driving demand—and  I expect that to continue,” he says.

As far as the potential for U.S. corn growers to switch from grain corn to white corn, Welch says it is possible. But he warns that production costs are greater for food corn.

“But the gap between production costs for grain corn versus white corn is closing as technology helps to keep costs down. Whether grain producers would make that jump or not, I can’t say. But the market is usually the driving factor in decisions like that, and the market for white corn in Mexico looks strong,” he said.

Meanwhile, Mexico continues to struggle with more than just grain shortages as a result of dry conditions. The 2011 price of beans has doubled in just over a year, and consumers are feeling the pinch in other food staples. On a whole, prices for basic foods—including beans, tortillas, vegetable oil, meat and dairy—rose 45 percent in 2011, and since October last year prices have exploded another 35 percent.

While the situation is most dire in the impoverished areas of the north, metropolitan areas including highly industrialized Monterrey are also feeling the squeeze. Recently the Mexican Red Cross estimated that some two million people are chronically hungry in the state of Nuevo Leon.

The crisis is becoming a political thorn in the side of Mexican PresidentFelipe Calderon. While Mexico grows substantial food crops for export to the U.S.—some $21 billion last year—it is struggling to grow enough for its resident population, a problem some argue is being driven by greed from Mexico’s upper class.

Agriculture Minister Fransisco Mayorga has come under fire by humanitarian groups who argue that if Mexico has the resources to grow food for sale to U.S. buyers who are willing to pay more than Mexican consumers, then why hasn’t the government limited exports in favor of feeding the poor?

Economists say Mexico will continue to struggle with becoming more sustainable and self-sufficient, but drought conditions will continue to complicate those efforts until substantial rains fall. But even with rain, the U.S. Grains Council recently reported that the lasting effect of the drought indicates Mexico’s demand for feed grains is likely to last for two to three more years.

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