the changing mexican market for us sorghum jaime malaga and teresa duch agricultural and applied...
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The Changing Mexican The Changing Mexican Market for US SorghumMarket for US Sorghum
Jaime Malaga and Teresa DuchJaime Malaga and Teresa Duch
Agricultural and Applied EconomicsAgricultural and Applied Economics
Texas Tech UniversityTexas Tech University
2006 AAEA Meetings Long Beach CA
OutlineOutline
BackgroundBackground
USUS
MexicoMexico
Bilateral Trade in Sorghum –NAFTABilateral Trade in Sorghum –NAFTA
Changing Trends Changing Trends
ImplicationsImplications
Sorghum production in the U.S. and Mexico, Sorghum production in the U.S. and Mexico, 1960-20051960-2005
0
5,000
10,000
15,000
20,000
25,000
30,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Year
Tho
us.
of M
t.
Mexico USA
USDA-PS&D, 2006
Corn production in the U.S. and Mexico, 1960-2005Corn production in the U.S. and Mexico, 1960-2005
0
50,000
100,000
150,000
200,000
250,000
300,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Year
Thous.
of M
t.
Mexico United States
USDA-PS&D, 2006
Sorghum BackgroundSorghum Background
USUS• World largest producerWorld largest producer• Kansas, Texas, OklahomaKansas, Texas, Oklahoma• Domestic consumption decliningDomestic consumption declining• Corn competition since the 80’sCorn competition since the 80’s• Stagnant yields since 1980’sStagnant yields since 1980’s• Domestic price gap (corn- sorghum) Domestic price gap (corn- sorghum)
disappearingdisappearing• High and increasing dependence on foreign High and increasing dependence on foreign
marketsmarkets
Sorghum BackgroundSorghum Background
MexicoMexico• World fifth largest producerWorld fifth largest producer• World largest importerWorld largest importer• Domestic consumption expanded in the 90’sDomestic consumption expanded in the 90’s• Yields slightly growing and comparable with USYields slightly growing and comparable with US• Corn competition not fully felt until recentlyCorn competition not fully felt until recently• Corn-sorghum price gap still importantCorn-sorghum price gap still important• Situation is changing rapidly – NAFTA Situation is changing rapidly – NAFTA
negotiation impactsnegotiation impacts
US Corn and Sorghum Yields (MT/ha), US Corn and Sorghum Yields (MT/ha), 1980-20041980-2004
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
1980 1983 1986 1989 1992 1995 1998 2001 2004
Year
MT
on
ha -1
Corn Sorghum
USDA, 2006
US Feed Grain Use 1961-2004US Feed Grain Use 1961-2004
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
Year
Thous.
of M
t.
Sorghum Corn
FAO-STATS, 2006
Corn
Sorghum
U.S. Sorghum Domestic Use and Exports, 1960-U.S. Sorghum Domestic Use and Exports, 1960-20052005
0
5,000
10,000
15,000
20,000
25,000
30,000
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Year
Thous.
of M
t.
Exports Production - exports
USDA-PS&D, 2006
Exports
Domestic Use
U.S. Sorghum Exports, 1980-2005U.S. Sorghum Exports, 1980-2005
0
1,500
3,000
4,500
6,000
7,500
9,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Year
Tho
us.
of M
t.
Mexico Rest of world
FAO-STATS, 2006
To Mexico
To ROW
Mexican Sorghum Supply, 1961-2005Mexican Sorghum Supply, 1961-2005
0
2,000
4,000
6,000
8,000
10,000
12,000
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
Year
Tho
us.
of M
t.
Production Imports
FAO-STATS, 2006
Domestic Production
Imports
Mexican Chicken and Pork Production (MT) 1970-Mexican Chicken and Pork Production (MT) 1970-20042004
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
Year
MT
on h
a -1
Chicken Pork
SIACON-SAGARPA, 2006
Chicken
Pork
Mexican Feed Grain Use, 1961-2003Mexican Feed Grain Use, 1961-2003
0
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
Year
Tho
us.
of M
t.
Sorghum Corn
FAO-STATS, 2006
Sorghum
Corn
US Corn and Sorghum Prices, 1970-2004US Corn and Sorghum Prices, 1970-2004
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1970 1975 1980 1985 1990 1995 2000 2005
Year
Pes
os o
f 20
00
Corn Sorghum
FAO-STATS, 2006; IMF, 2006
Corn Price
Sorghum Price
Mexican Corn and Sorghum Prices, 1970-2004Mexican Corn and Sorghum Prices, 1970-2004
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1970 1975 1980 1985 1990 1995 2000 2005
Year
Pes
os o
f 20
00
Corn Sorghum
FAO-STATS, 2006; IMF, 2006
Corn Price
Sorghum Price
Mexican and US corn and sorghum prices, Mexican and US corn and sorghum prices, 1970-20041970-2004
0.00
3000.00
6000.00
9000.00
1970 1975 1980 1985 1990 1995 2000 2005
Mexico US
Corn prices Corn prices
0.00
2000.00
4000.00
6000.00
1970 1975 1980 1985 1990 1995 2000 2005
Mexico US
Sorghum prices Sorghum prices
NAFTA SchedulesNAFTA Schedules
Sorghum: Mexico removed its 15% ad-Sorghum: Mexico removed its 15% ad-valorem tariff to US and Canada from the valorem tariff to US and Canada from the beginning of NAFTA (1994)beginning of NAFTA (1994)
Corn: Mexico obtained a 15 year tariff Corn: Mexico obtained a 15 year tariff elimination schedule with a TRQ system elimination schedule with a TRQ system and a high tariff out of quotaand a high tariff out of quota
Poultry: Mexican tariffs negotiated a ten Poultry: Mexican tariffs negotiated a ten years with chicken legs extended to 15 years with chicken legs extended to 15 yearsyears
By 2008 all Mexican tariffs will be By 2008 all Mexican tariffs will be eliminatedeliminated
lnln(SorgM) (SorgM) == 0 0 + + 11lnln(PR) + (PR) + 22lnln(ChickP) + (ChickP) + 33lnln(PorkP) + (PorkP) +
SorgMSorgM is the amount of sorghum imported from the US by Mexico in thou. of is the amount of sorghum imported from the US by Mexico in thou. of Mton.Mton.
are parameters to be estimatedare parameters to be estimated
PRPR is the Mexican and US sorghum and corn price ratiois the Mexican and US sorghum and corn price ratio
ChickPChickP is the production of chicken in Mexico in thou. of Mton.is the production of chicken in Mexico in thou. of Mton.
PorkPPorkP is the production of pork in Mexico in thou. of Mton.is the production of pork in Mexico in thou. of Mton.
is the error term of the modelis the error term of the model
Sorghum Import Demand ModelSorghum Import Demand Model
Where: Where:
DataData
The variable price ratio (PR) was constructed using the The variable price ratio (PR) was constructed using the prices of corn and sorghum in both countries as follows:prices of corn and sorghum in both countries as follows:
• First, calculating the price ratio of corn and sorghum between Mexico First, calculating the price ratio of corn and sorghum between Mexico and the U.S. and the U.S.
Corn price ratio (CPR) = U.S. corn price / Mexico corn priceCorn price ratio (CPR) = U.S. corn price / Mexico corn price Sorghum price ratio (SPR) = U.S. sorghum price / Mexico sorghum priceSorghum price ratio (SPR) = U.S. sorghum price / Mexico sorghum price
• Then, PR = SPR / CPRThen, PR = SPR / CPR
ln(SorgM) ln(SorgM) == - 20.65 - 1.97ln(PR) + 0.82ln(ChickP) + - 20.65 - 1.97ln(PR) + 0.82ln(ChickP) + ln(PorkP)ln(PorkP)
tt-values-values -5.57-5.57 -2.45-2.45 5.585.58 3.683.68
nn 3535
RR22 0.840.84
Estimated Sorghum Import Demand EquationEstimated Sorghum Import Demand Equation
The estimated equation was used to forecast the amount of The estimated equation was used to forecast the amount of sorghum Mexico would import in 2009. sorghum Mexico would import in 2009.
Forecasted ScenariosForecasted Scenarios
Scenario 1Scenario 1• PR between the two countries remains unchanged (0.72), and PR between the two countries remains unchanged (0.72), and • ChickP and porkP accumulated growth is similar to that of the past 5 yrChickP and porkP accumulated growth is similar to that of the past 5 yr
Chicken 24%Chicken 24% Pork 3%Pork 3%
Scenario 2Scenario 2• PR changes to 1, andPR changes to 1, and• ChickP and porkP accumulated growth is similar to that of the past 5 yrChickP and porkP accumulated growth is similar to that of the past 5 yr
Chicken 24%Chicken 24% Pork 3%Pork 3%
Scenario 3Scenario 3• PR changes to 1 in, PR changes to 1 in, • ChickP accumulated growth is that proposed by FAPRI (11%), andChickP accumulated growth is that proposed by FAPRI (11%), and• PorkP accumulated growth is similar to that of the past 5 yr (3%)PorkP accumulated growth is similar to that of the past 5 yr (3%)
Thousands of MtonThousands of Mton
Imported 2004Imported 2004 Forecasted 2009Forecasted 2009 Change (%)Change (%)
Scenario 1Scenario 1 2,9122,912 3,6253,625 2525
Scenario 2Scenario 2 2,9122,912 1,5781,578 -45-45
Scenario 3Scenario 3 2,9122,912 1,2561,256 -57-57
Forecasted scenariosForecasted scenarios
Mexican sorghum importsMexican sorghum imports
Mexican Sorghum Forecasted Imports (MT), 2005-Mexican Sorghum Forecasted Imports (MT), 2005-20092009
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
5,000.0
5,500.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year
MT
Scenario 1 Scenario 2 Scenario 3
Final RemarksFinal Remarks Integration of the US and Mexican agriculture Integration of the US and Mexican agriculture
has induced a strong dependency of US has induced a strong dependency of US sorghum exports from the Mexican market.sorghum exports from the Mexican market.
Substitution of sorghum by corn has occurred in Substitution of sorghum by corn has occurred in the US for longtime and is coming to Mexico.the US for longtime and is coming to Mexico.
The way NAFTA was negotiated may have The way NAFTA was negotiated may have protected the Mexican sorghum market for US protected the Mexican sorghum market for US exports from corn competition.exports from corn competition.
After 2008 NAFTA tariffs will be zero for all ag After 2008 NAFTA tariffs will be zero for all ag products, including corn and poultry.products, including corn and poultry.
It is very likely that US sorghum exports to It is very likely that US sorghum exports to Mexico decline considerably after 2008.Mexico decline considerably after 2008.