March 10, 2011

 

Mexico to hedge more agricultural products in 2011

 

 

Mexico's government will hedge more agricultural products than ever this year as farmers rush to lock down high commodity prices and buyers protect themselves after extreme cold damaged the crops.

 

The Mexican government provides a subsidy to Mexican producers and commercial traders to buy futures options in Chicago and hedge exposure to radical price swings.

 

Known as Aserca, the programme has grown into a larger market player in recent years as more farmers, meat packers and corn tortillas makers sign up as a way to reduce their risk.

 

The window to hedge crops from the spring-summer planting season opens on Wednesday, Aserca's director Manuel Martinez de Leo told Reuters in an interview, with a record number of contracts likely to be placed around June and July.

 

After a cold snap devastated one-fifth of Mexico's corn harvest last month, interest spiked in the hedging programme.

 

The crop losses stoked white corn prices higher – rising 32.3% in Mexico since the beginning of the year – and those who contracted early last year were protected.

 

Mexico plugs the programme as a way to stabilise tortilla prices and calm inflation worries.

 

"The biggest promotion we have are the prices. Commodities are going up and that stimulates more planting," Martinez de Leo said.

 

Mexico will hedge between six and nine million tonnes of corn in this year's spring-summer planting season, up from the three to four million usually contracted in the cycle, Martinez de Leo said.

 

Frosts in early February nearly wiped out the fall-winter crops in the major producing state of Sinaloa, damaging some five million tonnes of corn already contracted out to buyers.

 

But the government says an aggressive replanting programme will recover three million tonnes of corn and 1.5 million tonnes of sorghum in the state.

 

Aserca renegotiated existing contracts so meat producers will accept sorghum as animal feed and all the white corn will go to corn flour millers, Martinez de Leo said.

 

"(The contracts) will be respected," he said.

 

The 500,000 tonnes not covered by the replanting will be recovered in Sinaloa's upcoming harvesting season, he said.

 

Mexico produces mostly white corn to make tortillas and imports yellow corn from the US for animal feed.

 

But after the losses in Sinaloa, traders say Mexico's corn imports this year may be two million to three million tonnes greater than in an average year, which could easily raise its annual import volume from the US above 10 million tonnes.

 

That would shatter the previous record of US corn exports to its southern neighbour of about 9.5 million tonnes set in the 2007/08 marketing year.

 

Hedging of soy and edible oils like safflower and rapeseed oil will also jump this year by 120% to between 200,000 and 250,000 tonnes, while wheat and sorghum hedging will stay at similar levels seen last year, he added.