With tortilla prices rising in Mexico, fingers point north

by Josh Sosland
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With tortilla prices rising in Mexico, fingers point north MEXICO CITY — Rising tortillas prices in Mexico have created political tension there and put a spotlight on rising ethanol demand and its potential effects on food prices. The highly charged situation changed rapidly through the week, culminating with a cap on prices declared Jan. 18.

Tortilla prices in Mexico have climbed 14% over the past year, a price move described by the head of Mexico’s central bank as "unjustifiable." Grain merchandisers have projected 20% to 25% further gains before the end of March.

Economists have pointed to stepped-up U.S. demand for ethanol, a rapidly expanding outlet for corn, as a principal factor in the rising tortilla prices.

Prices for corn are up sharply over the past year, with dramatic gains in recent days.

March corn futures prices closed at $4.08 a bu on Jan. 17 at the Chicago Board of Trade, up 98% from a year earlier. Prices were up nearly 50c from a week earlier. The surge, including two days with limit-up moves, followed U.S. Department of Agriculture estimates/forecasts for 2006 corn production, Dec. 1 corn stocks and 2007 corn ending stocks. All three were below average trade estimates.

While the C.B.O.T. price hike has been the largest factor boosting corn, the price of white corn in Mexico in recent weeks has been "turbocharged" by increasing tightness of local supplies. Unconfirmed trade reports suggest the northern Mexico harvest (December-January) has fallen considerably shy of expectations. As a result, the premium of U.S. white corn for export to Mexico has surged over the last few weeks to $1 per bu above yellow corn from only 20c over the last several weeks.

The rising tortilla prices have captured the attention of the Mexican government at the highest levels. A statement from President Felipe Calderon at mid-week said he has met with economic officials to "follow up on the strategy employed to stabilize the price of the tortilla."

The rise in tortilla prices has prompted scrutiny of Mexico’s largest corn miller, Gruma S.A. de C.V. An antitrust agency in Mexico said it was investigating allegations of corn price manipulation and collusion to limit supplies. According to Gruma, its GIMSA division has a 70% share of the Mexican corn flour market. The company sells tortillas in Mexico through its Prodisa division. Additionally, Gruma is the largest tortilla manufacturer in the United States.

Late last week, President Calderon issued new limits on the price of tortillas to 8.50 pesos (78c) per kilogram and threatens prison sentences of up to 10 years for companies found hoarding corn. Media reports indicated tortillas selling for as much as 10 pesos (91c) per kilogram.

Gruma was indicated to have agreed to the new limits, which also cap corn flour at 5 pesos (46c) per kilogram and corn at 3.5 pesos (32c) per kilogram ($8.12 per bu, delivered, bagged, Mexico City).

Eduardo Sojo, Mexico’s economy secretary, said duty-free imports of 650,000 tonnes of corn have been authorized to help ease upward price pressure but warned that relief would not be evident immediately.

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