MEXICO - Mexico’s economic growth is gradually improving, but food consumption remains vulnerable to income and price effects, according to a report from Rabobank – "Mexico Agribusiness Outlook 2014: A positive year but full of challenges".
The Mexican economy is expected to recover gradually in 2014, after a slow 2013, with Rabobank forecasting 2.9 per cent growth, mostly occurring during the second half of the year. However, sector-specific challenges will continue to affect agribusiness. Grain and oilseed production is expected to be driven by declining prices and margins. Animal and meat prices and margins are expected to increase, although disease is expected to threaten both hog and poultry production, while the sugar and beverages sectors are expected to face a difficult year.
"We identify five factors that will drive Mexico’s growth this year," explained Rabobank analyst Pablo Sherwell. "Resumption of exports to the US, increased competitiveness of the Mexican manufacturing sector, higher government expenditure, timely public expenditure, and approval of important legislation allowing for structural reform in key sectors. We also anticipate the peso will appreciate slowly but surely, and current pressures on consumer prices will ease, over the course of the year."
- Grain: Mexico’s grain production recovered from severe weather events during the past two years, but corn production remains constrained. Rabobank expects domestic grain prices to retain a bearish fundamental tone in 2014/2015. Declining prices and margins will be the main drivers for grain and oilseed production.
- Animal Protein: The animal protein sector is likely to show positive margins as animal and meat prices are expected to be on the upside, while feed costs will remain constrained. Due to health issues, such as PEDv in North America, a severe contraction in hog supplies is expected. Poultry market expansion is likely but could be threatened by the return of avian influenza. Beef production remains constrained due to continued contraction of the herd.
- Sugar: The Mexican sugar industry continues to suffer low prices and tight margins. As sugar production increases and consumption weakens relatively, exports will become the wild card for domestic prices. However, as supplies remain ample in the US (Mexico’s primary and preferred market for sugar exports) and the rest of the world, exports will remain a challenge.