Contributed by Ben Scholl.
On New Year’s Eve the Mexican government announced its plans to phase out imports of GMO corn by the year 2024. Since the United States accounts for approximately 96% of the Mexican corn imports, there could be lasting implications for farmers here at home. Mexico is one of, if not, the largest importers of United States corn in the world, depending on the year. 2018/2019 imports were 20.4 million metric tons (803 million bushels). So is this ambitious plan by our neighbors to the south a big deal or a small deal? Well, it depends.
Before we dive deeper, we need to consider our trade partner’s habits and regulations. Mexico produces non-GMO corn exclusively. The production of GMO products is not permitted in their domestic agriculture. They will export their non-GMO corn and back fill their feed needs with GMO regularly.
Let’s consider the implications of what this policy might be and what it might mean for the U.S. farmer. Two thoughts: one is the full-scale ban of GMO imports; second is a scaled back version where they still feed GMO to animals. First, let’s talk full-scale GMO ban on imports. Can we even supply that much non-GMO to Mexico? 803 million bushels is approximately 4.5 million acres of non-GMO corn. While official production estimates on non-GMO production are scarce, Mercaris puts estimates around 12.1 million acres in 2018. As a buyer, I can anecdotally add, non-GMO is a completely oversupplied market. This makes sense as farm margins have shrunk in the last six years (prior to this rally and last year’s governmental bag drop) and producers have looked for ways to reduce inputs and gain margin. Non-GMO premiums usually run 5-7% of the price of corn. So in short, yes, we could supply this corn. Would it fundamentally change the non-GMO market in the United States? Also, yes.
Now let’s dig into what a human consumption only import program would look like. Mexico currently uses 709 million bushels a year for milling, food, and other purposes. They produce around a billion bushels of non-GMO a year. They export around 20-60 million bushels a year. Under this scenario, this could be a push to become more self-sufficient in feeding Mexico. So in the end, this version would probably rearrange some trade flows, but not fundamentally shift the non-GMO or GMO yellow corn markets.
What corn will this fundamentally change? White corn. The U.S. exports 30-40 million bushels of white corn a year. This is almost exclusively GMO. In fact, just a fraction of the white corn in the United States is non-GMO. Most of this goes to domestic millers, accompanied by a small export program to some Asian, African, and South American countries. If Mexico were to go to non-GMO white corn imports, a quarter million acres of white corn would need to shift to non-GMO. That is around 31% of all United States white corn. If you are a white corn producer – specifically a western corn belt white corn producer – this policy will be very important to you.
With the rising middle class around the world, consumption habits will continue to change. Agriculture will not be immune or unique to these changes. At the end of the day, there will be plenty of demand for whatever the producer chooses to raise. However, another premium market and opportunity has this grain trader excited about the opportunities that may be around the corner.
Ben Scholl is the President of Lewis B. Osterbur and Associate. Osterbur trades Non-GMO and specialty corn products along the United States river system. They are headquartered in Owensboro, Kentucky and operate in Illinois, Kentucky, and Missouri.
Ben can be reached at ben.scholl@osterbur.com