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The poker chips are all-in on Mexico

Pork situation is similar in the ease of flow of product, the difference is the ability of other suppliers to access the Mexican market in pork.

Joseph Kerns

December 19, 2022

4 Min Read
Mexico flag in corn
Getty/iStockphoto

As the year draws to an end and we look toward 2023, I believe that our fate will be heavily influenced by what goes on in Mexico – both in terms of pork exports and corn exports. Mexico is the No. 1 destination of both commodities, this situation merits consideration.

Let's start with corn as it would appear to be the easier one to handicap. Our cross-border trading partner has been a consistent destination for several years, seemingly without much consternation. That all changed last year when it was announced that Mexico would no longer accept GMO corn. That edict was met with skepticism by those in the trade, both in terms of the logistical challenge that it would impose as well as the fact that we have been using GMOs for the past 50 years without incident. 

Negotiations were initiated almost immediately and it was clarified within the corridors of the respective governmental agencies that the ban would only apply to corn for human consumption. Fair enough. But the policy was still in place and the understanding was not codified. 

That changed this past week with U.S. Secretary of Agriculture Tom Vilsack's team announcing that it had reached an official agreement that clarified the GMO ban applied only to corn for human use. This preserves the 17 mmt (600 million bu) trade between our two countries. Expect to see an announcement in January. 

The pork situation is similar in the ease of flow of product, the difference is the ability of other suppliers to access the Mexican market in pork. Whereas the physical logistics strongly favor the U.S. with grain movement, the pork situation is a bit more competitive and we often have folk nipping at our heels. The importance of Mexico is generally known by those in the pork industry, the attached chart provides the context of this reality.

Kerns Fig 1 121922.png

The year-over-year increases in product movement to Mexico was critical in 2022 and will likely remain so in 2023. Note that China has fallen off precipitous this year and Mexico was a welcome outlet to pick up the slack. The situation with China will likely make this even more important as the Covid spread and governmental policy have ushered in a collapse in the Chinese market with the Dalian forward curve offering no indication of change. To wit, the price of pork in China fell 10% over the weekend. The conditions in China seem dire and are trending toward "worse" rather than "getting better."

Which brings the spotlight back to Mexico. Ask 10 people their opinion of export prospects and you will get a myriad of thoughts. Our advocates in the industry, the U.S. Meat Export Federation, are optimistic that we will see continued success in 2023. They will readily cite that pork represents a good value in Mexico and the product is solidly within the cultural norm. I am respectful of their views and have found them to be very good at their assessments without getting too far over their skis. We all know what we want the answer to be, there is ample evidence to support the optimism. Additionally, the high price of corn and continuing health challenges in Mexico gives little room for an increase in production in country.    

Ultimately, economics likely represents the biggest component and, in addition to favorable logistics, the United States is favorably positioned in this realm. The attached map from Keaston Handeland on our team provides a graphical representation of our competitiveness. 

Kerns Fig 2 121922.png

Finally, this is all about demand as Dr. Steve Meyer will often reference. The United States is not producing ourselves out of profits and the upcoming December Hogs and Pigs report is likely to evidence the same. Dr. Meyer's best guess for the report on Friday is for a .5% reduction in the sow herd and a 1% decline in the market herd. Neither number moves the needle much and a stagnant situation is a welcome platform for U.S. pork producers. There is reason to look forward to the new year with a modicum of hope.

Comments in this article are market commentary and are not to be construed as market advice. Trading is risky and not suitable for all individuals. Click here to contact the author. 

Source: Joseph Kerns, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. The opinions of this writer are not necessarily those of Farm Progress/Informa.

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