US Corn Industry Faces Tough Times In Its Two Largest Export Markets, China and Mexico

After Russia’s invasion of Ukraine, China has sought new suppliers, including fellow BRICS members Brazil and South Africa, to reduce its dependence on US producers, while Mexico is determined to push through with its partial ban on GM corn.

The United States Department of Agriculture is projecting a record bumper crop for corn and increased soybean production in 2023. Domestic corn production is estimated to reach 15.265 billion bushels, up 1.535 billion on 2022’s record harvest, largely due to increased planted area. But as supply surges, US corn growers face the prospect of slumping demand in its second biggest export market, China, as well as stiffening regulatory challenges in Mexico, its largest market. Between them China and Mexico accounted for over half of all overseas purchases of US corn last year.

China Scrambles to Diversify Its Corn Supplies

China has been gradually reducing its corn imports from the US due to a combination of weak domestic demand and cheaper supplies from Brazil. Until recently, China imported roughly 70% of its corn from the US and roughly 30% from Ukraine, according to Brazilian grain exporters group Anec. But after Russia’s invasion of Ukraine, Beijing has, unsurprisingly, tried to find new suppliers to reduce its dependence on US and Ukrainian producers. Two of the countries it has turned to are fellow BRICS members Brazil and South Africa, Africa’s largest corn grower.

The results are already being felt. As Reuters reported in early May, Chinese buyers cancelled  832,000 tons of orders in the last three weeks of April alone. That was enough to push US corn exports to their lowest weekly total on record.

“China has made a strategic decision that rather than deal with the United States and our political differences, they will just buy from Brazil,” said Jim Gerlach, president of broker A/C Trading in Indiana.

Brazil is not only providing China with cheaper corn but is on track to overtake the US as the world’s largest corn exporter this year. From Bloomberg:

Increased competition from Brazil is underscored by forecasts for it to pass the US as the top exporter this year.

China went on a corn buying spree in March, with purchases of almost 4 million tons announced by the US government between March 14 and April 14. But US corn is now less competitive, with supplies from Brazil about $30 a ton cheaper for delivery in the third quarter, traders said. Weak domestic demand for corn as animal feed is also a reason behind the cancellations.

Another reason China has been cancelling orders is that it also anticipates a bumper corn crop this year. Farmers in the northeast, the top production region for corn and soybeans, have been more inclined to grow corn due to higher profits and easier management, CITIC Futures said. But increasing competition from Brazil is also taking its toll. Last year, China was already the destination of 1.16 million tonnes of corn from Brazil, almost all of which was shipped in December.

Preparing for Further Fallout from US-China Trade Wars

Despite the increase in domestic corn production, China is forecast to import 20 million tonnes this year, according to Anec. How much of that will come from the US remains to be seen. Many US farmers are already fretting about the risk of further fallout from the escalating US-China trade wars. Soybeans farmers already lost in excess of $25 billion worth of agricultural exports to retaliatory tariffs a few years ago, as S&P Global noted in a market report last August.

“We [US farmers] somehow managed to pull through the last trade spat with China, but afterwards, we did lose some of the market share to Brazil,” said an Illinous-based soybeans farmer.

“Another round of trade restrictions from China could see us losing a significant volume of sales, which we can ill afford,” another farmer said.

So, the question is: are US farmers’ concerns justified?

Data doesn’t lie. The fact remains that China is the biggest market for American farmers. The world’s second-largest economy with a 1.4 billion population consumes roughly a fifth of US agricultural exports every year.

In fact, China is almost indispensable for American agriculture, especially soybeans and corn. In 2021, 52% of the US soybean shipments of 53 million mt were sold to China, according to the US Department of Agriculture. China also purchased 27% of 69 million mt of exported corn last year.

The second biggest buyer of US corn is Mexico, which bought $4.92 billion of the (largely) yellow foodstuff in 2022. Together, the two countries account for well over half of all foreign purchases of US corn as well as roughly 60% of US soybeans and 34% of all US agricultural exports. Like Beijing, Mexico is now shopping around for alternative suppliers of corn, its number-one staple food, albeit for different reasons.

As regular readers know, what Mexico wants is to grow its own non-generically modified corn and import only non-GM corn to meet domestic demand for human consumption. And almost all the corn the US exports is genetically modified. The Mexican government’s reasons for doing so include protecting the health of the population, the environment and Mexico’s bewildering genetic diversity of maize. The government also wants to halt and ultimately reverse its acute — and growing — dependency on US imports for all of its main food staples, as illustrated in this graph:

Source: Timothy A Wise

As I have noted before, Mexico’s dependency on US staples is largely the result of NAFTA, which eliminated the Mexican government’s protection mechanisms for Mexican farmers while preserving U.S. corn subsidies for US farmers and Big Ag corporations. Two years after NAFTA, the Clinton Administration’s Farm Bill dismantled the last vestiges of U.S. government policies designed to boost prices by limiting overproduction.

The result was as predictable as it was brutal: the US flooded Mexico with staple foods at prices Mexican growers could not possibly compete with, forcing many of them out of business while discouraging others from trying to expand production. According to the Institute for Agriculture and Trade Policy (IATP), in 16 of the 28 years since NAFTA took effect, the U.S. exported corn, soybeans, wheat, rice and cotton at prices 5-40% below what it cost to produce them.

Reversing the Trend

Mexico’s President Andrés Manual Lopéz Obrador (aka AMLO) is determined to reverse this trend by reducing Mexico’s dependence on imported foods, though he faces an uphill challenge in actually pulling it off.

“We are going to produce in Mexico what we consume,” he during his presidential campaign. “We are in a tremendous crisis because we depend on foreigners for what we consume. There is no food sovereignty.”

On December 31, 2020 AMLO issued a presidential decree calling for all imports of GMO crops, including corn, as well as the “probably” carcinogenic weedkiller glyphosate to be phased out by the end of January 2024. Crucially, the decree enjoyed the support of Mexico’s Supreme Court, which in 2021 ratified the Precautionary Measure that bans permits to sow genetically modified corn in Mexico.

But the ban would also hurt US farmers, Big Ag companies and global biotech behemoths. More than 92% of the corn grown in the States is GMO. Domestically, almost all of it is used as animal feed or to produce ethanol and processed food such as corn syrup. The rest is exported, roughly a quarter of which goes to Mexico where it is predominantly used as animal feed. And the US government is determined to ensure that none of this dynamic changes changes.

Amid ratcheting pressure from the US side, including the threat of counter-sanctions, AMLO’s government earlier this year issued a new presidential decree that, among other things, exempted feed corn, which counts for the overwhelming majority of U.S. exports, from the restrictions. The new decree only applies to GM corn used in tortillas and corn-dough, which is supplied almost exclusively by Mexican producers of white and native corn varieties. Only four percent of US corn exports are white corn, and most of that does not go into tortillas.

In other words, the new decree will have minimal impact on US growers. Yet even that did not placate the US government. One reason for this is that the decree still retains plans to prohibit use of glyphosate, the deadline for which was brought forward to March 31, 2024. Plus, if Mexico were to actually ban some GMO imports of corn without suffering huge consequences, it would send a message to other countries in Latin America, one of the biggest markets for GMO crops, that there are alternatives available. And those alternatives do not offer the same proprietary perks as GMO seeds.

In March, the US requested formal consultations with Mexico arguing that its plans to limit GMO imports contravene the USMCA trade deal by restricting trade and are not “based on science”. Canada has joined the US in this planned action. However, as Wise argues in his article, Mexico Calls US Bluff on Science of GMO Corn Restrictions, “the Mexican government is not restricting imports: it is restricting the use of GM corn in one defined set of food products.” As such, the US government will be hard pressed to find any meaningful number of exporters of GM white corn whose markets are reduced by Mexico’s actions.

Also, the US’ claim that Mexico’s proposed ban on GMO corn for direct human consumption is not grounded in science is itself not grounded in reality. In a panel discussion in late March, Mexico’s National Council on Science and Technology (Conacyt), the government’s highest science body, laid out in clear terms why Mexico is justified in adhering to the precautionary principle when it comes to protecting its native corn from GM varieties before it is too late. Mexico’s biosecurity is of utmost importance, said Alejandro Espinoza Calderón, director of Mexico’s biosecurity agency Cibiogem:

“Mexico has a rich store of exceptionally healthy varieties of corn. It is alarming to find that 90% of tortillas were shown to have traces of both glyphosate and transgenics.”

The impact of losing Mexico’s panoply of corn varieties would be felt far beyond Mexico’s borders, as numerous international studies have shown. It would have “direct repercussions on the diversity of maize and ecosystems in all of North America and the rest of the world,” warned a paper by the Commission of Environmental Cooperation, the environmental side accord to the North American Free Trade Agreement (NAFTA).

To protect its native corn varieties, Mexico is studying the possibility of reaching agreements with farmers in Argentina and Brazil to procure imports of non-GM yellow corn while also increasing domestic production and developing non-corn sources of animal feed. The Mexican newspaper La Jornada reported in March that some US farmers are also getting behind the idea, particularly those already growing non-GM corn. This news was confimed last week by Conacyt General Director Elena Álvarez-Buylla, who said that farmers in the US are willing to plant non-GMO “fit-for-purpose” corn that Mexico needs to limit its use of GM grains. From Reuters (in Spanish):

[Álvarez-Buylla] said that GM corn is “inextricably” tied to the herbicide glyphosate, the use of which Mexico seeks to ban in the first months of next year, and does not have the nutritional value of native varieties. Mexico considers itself the birthplace of corn.

“Mexico is in an agro-ecological transition that revalues ​​millennial traditional production rooted in multicultural knowledge that adapts to the social, environmental, and cultural context,” Álvarez-Buylla said in an online maize forum.

“With this, we hope to contribute to safeguarding the health of Mexicans, as well as the culture of our peoples, helping to improve local and campesino economies, without causing negative impacts for the commercial relations that Mexico historically has with US producers.”

But the Mexican government will certainly have its work cut out in the coming years. While a decline in white corn imports in 2022 suggests a certain amount of progress in reducing import-dependence, national-level data show few signs of a meaningful increase in corn production. Meanwhile, low international prices for corn and wheat together with the recent appreciation of the Mexican peso are causing problems for many growers in Sinaloa and Sonora, some of whom are now requesting emergency government support.

The US and Canadian governments could, of course, help out their North American trade partner by shelving their threats of legal action. After all, as Ernesto Hernández-López, a professor of law at the Fowler School of Law, writes in an op-ed in Al Jazeera, little is at stake for US corn growers, the ban is legal, and a trade dispute won’t help matters. Instead, they should encourage farmers to export non-GMO corn to Mexico. In the end, that is what their customer wants.