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

Cross-posted from Zero Hedge

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

 

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