10 Reasons Why The Western Hemisphere Offers Markets To Watch

By: Marri Carrow, U.S. Grains Council Regional Director for the Western Hemisphere

Next week, U.S. Grains Council (USGC) members will gather to discuss the ever changing global agricultural markets, examine the past year's successes and challenges and develop strategies for the future during the organization’s 13th International Marketing Conference and 56th Annual Membership Meeting.

With Mexico outpacing other global buyers of U.S. corn and Canada claiming the top spot among buyers of U.S. ethanol in 2015, some of the hottest markets right now are our own neighbors in the Western Hemisphere.

Below are 10 reasons why 2015 was a huge year for ag trade in the Western Hemisphere and why U.S. agriculture should keep an eye on this region in 2016 and beyond.

#1 - The Numbers Tell The Story

In the 2014/2015 marketing year, the Western Hemisphere grabbed 51 percent of total U.S. corn exports, with Mexico, Colombia and Peru all claiming spots in the top five markets. These three countries combined consumed almost 40 percent of corn exported from the United States. 

In total, the United States captured 86.2 percent market share in this region, enjoying a 90+ percent market share in more than 10 countries, including Mexico, Colombia, Peru, Canada, the countries of Central America and Jamaica.

Combining imports from six Central American countries would have made it the fifth largest U.S. corn export market in 2014/2015, just behind South Korea, and the seventh largest distiller's dried grains with solubles (DDGS) destination.

#2 - Colombia Proves to be a Reliable Buyer

Once again, the United States claimed 99 percent of Colombia’s more than 4.6 million metric ton (181 million bushels) corn import market - a dramatic increase from 13 percent just two years prior.

Declining prices combined with trade preferences under the U.S.-Colombia free trade agreement (FTA) and high regional corn duties are responsible for this second year of success.

The Council views Colombia as high priority market, having just completed a 10 year market outlook examining the potential future for the country's livestock, poultry and feed sectors.

#3 - Sorghum Promotions Also Pay Off in Colombia

Colombia’s import of U.S. sorghum in 2015 also paid dividends on several years of USGC efforts to create market opportunities among buyers.

The Council has been promoting U.S. sorghum in Colombia since before the U.S.-Colombia FTA went into effect in 2012. However, sales have faced obstacles, including misperceptions that sorghum contains high-levels of tannins; the high price and availability of the U.S. product; and few buyers following the commodity.

To overcome these barriers to trade, the Council has undertaken activities including buyers conferences, animal nutrition seminars, trade teams to the United States and company-specific strategies.

In October, Colombia imported 23,000 metric tons (905,464 bushels) of U.S. sorghum, nearly filling its 24,300 ton (956,600 bushel) tariff rate quota (TRQ) negotiated in the U.S.-Colombia FTA. Under the FTA, the TRQ will be expanded by 5 percent annually until it is phased out completely in 2023, creating even greater opportunities for this U.S. commodity.

#4 - Peru Becomes a Top Five Destination for U.S. Corn

The U.S.-Peru FTA has proved instrumental in boosting bilateral trade in food and agricultural products since it went into force on Feb. 1, 2009, including spurring new sales of U.S. corn. In the 2014/2015 corn marketing year, Peru finished as the fifth-largest U.S. corn export destination, importing more than 2.4 million tons (94.5 million bushels) of U.S. corn, an increase of 41 percent over the previous year.

U.S. corn had a TRQ in Peru of 709,000 tons (27.9 million bushels) in 2015, which was filled within the first week of January. After that, sales of U.S. corn continued because of the FTA tariff advantage.

While Peruvian buyers are becoming more sophisticated in purchasing grains, they have indicated a growing preference for U.S. corn. However, 2016 could be a challenging year as the price band system under MERCOSUR could create competitive issues for the United States.

The Council is shifting its promotion strategy in the country based on these realities, including educating buyers about other commodities like sorghum and DDGS and showing the advantages of combo shipments originating from the United States.

#5 - USGC Ethanol Export Program Yields Results in Peru

Ethanol export programs undertaken by the Council and industry partners saw early success following a Peruvian trade team’s visit, with a U.S. exporter confirming sales of 10 million gallons of U.S. ethanol, valued at more than $15 million.

In June, the Council led the team of Peruvian ethanol buyers and producers to participate in the International Fuel Ethanol Workshop and visit ethanol production facilities and trading companies in Iowa, Illinois and Texas.

This market shows additional potential because in 2008, Peru established its renewable energy portfolio standard, with a 7.8 percent ethanol blend mandate in place just two years later. Importantly, the U.S.-Peru FTA makes ethanol going into this market duty free.

#6 - Canada Picks Back Up on U.S. DDGS

Canada finished the 2015 calendar year importing 511,000 tons of U.S. DDGS, a 12 percent increase over the previous year. Overall, Canada was the fifth-largest U.S. DDGS export destination.

Once a million-ton market for DDGS, Canada has been on a steady decline in imports since 2010. The Council is working to address this through research and programming; in September, USGC’s representative in Canada and U.S. DDGS merchandisers traveled throughout the Alberta region to meet with feedlot managers and feed resellers. The mission yielded immediate sales results, according to team participants. The Council also regularly distributes best cost feed formulation bulletins on DDGS to Canadian buyers, which keeps the product top of mind and often directly generates demand.

#7 – USGC DDGS Program In Southern Mexico Sees Success

In August, the Council’s promotion of U.S. DDGS to the underserved region of Southern Mexico reached a milestone as U.S. DDGS began to flow to the region on a commercial scale.

While Mexico was the second largest market for U.S. DDGS in 2015 with more than 1.5 million tons imported, its southern region has untapped potential. The Council has worked to gain a foothold in this market for U.S. DDGS through end-user education, DDGS promotion and trade servicing efforts.

The Council will continue its promotion of U.S. DDGS in this market through traditional boots-on-the-ground efforts, with aims of growing commercial sized purchases.

#8 - Policy Changes in Argentina Affect Global Markets

Argentina’s new president, Mauricio Macri, wasted no time in undoing policies of his predecessor to the benefit of local farmers. Within days of his inauguration, Macri eliminated export taxes for corn, beef and dairy products and reduced them for soybean and soy products; changed the way official exchange rates are calculated; and ended an export quota system intended to control corn and wheat markets. Analysts expect corn production to rise in response to these changes, likely making the Argentine crop extremely competitive in 2016 and the years to come.

#9 - Obama Administration’s Push for Cuba Reform

In December 2014, the Obama Administration announced it would seek to reform trade relations with Cuba, including the reestablishment of diplomatic relations and easing of financial and logistical trade restrictions. This announcement reinvigorated the U.S. agriculture community’s interest in the market, which could be the 10th largest for U.S. corn if it were to purchase 100 percent of its corn imports from the United States.

The Council has remained highly involved in Cuba, reengaging with the market quickly, sending multiple organization leaders and staff to fully assess the market potential, and identifying prospective business opportunities for U.S. coarse grains and co-products. Still, challenges remain for market development work in the country, which severely lacks cash or the opportunity for credit from the United States.

#10 – Changes in Mexico Barley Market Create Opportunities

The brewing industry in Mexico has gone through important changes in the past few years that have created an opportunity for barley and barley malt imports. 

Due to antitrust measures, ABInBev (which purchased Modelo) was forced to sell one of their brewing operations to Constellation Brands International, creating a third brewing company in Mexico that will eventually need more barley than it can purchase locally. This gives the Council the opportunity to introduce new buying schemes and strengthen existing supply relationships.

In addition, the Mexican craft brewery sector has been growing each year almost exponentially, while early starters are becoming more consolidated and have invested in their breweries to sustain growth. Due to this dynamic, new companies are being created to service craft brewers, first with equipment and now with ingredients.

The Council is working to educate this industry on U.S. malt, can be imported at any time thanks to the North American Free Trade Agreement (NAFTA) and can perform equally to European malt.