Growing hope in fields of corn

SAN SALVADOR EL SECO, MEXICO —  High corn prices are wreaking havoc on Mexico’s inflation rate and forcing shoppers to pay more for eggs, milk and tortillas. But they’re a godsend to farmers such as Victor Manuel Amador Luna.

With world corn prices riding high on strong demand from U.S. ethanol producers, Amador is looking to expand production on his farm about 125 miles east of Mexico City in the state of Puebla. He planted most of his 222 acres with corn this year and would like to buy more land.

“I’ve never seen prices this high in my lifetime,” said Amador, 79, his smile as wide as the crack in the dusty windshield of his Chevy pickup.

Corn futures for March delivery soared to the 20-cent exchange limit on the Chicago Board of Trade on Friday, hitting $3.965 a bushel after the U.S. Department of Agriculture announced a smaller-than-expected 2006 U.S. harvest of 10.5 billion bushels. Prices have surged 86% over the last year as plants that make corn-based ethanol fuel have sucked up a record 20% of U.S. production. U.S. agricultural officials said global inventories might fall to the lowest level in nearly 30 years, setting up a scramble among buyers to secure enough supply.

How long the bonanza will last is anyone’s guess. What’s clear is that America’s thirst for ethanol is being felt around the globe, delivering fatter profits for grain farmers but higher costs for livestock producers, food processors and consumers.

The United States is the world’s No. 1 corn producer and exporter, shipping an estimated 2.2 billion bushels to international buyers last year. Most nations can’t compete with government-subsidized U.S. corn, which countries such as Mexico have come to rely on to fatten their hogs, chickens and cattle.

But with 110 ethanol plants in the U.S. snapping up hundreds of millions of bushels and 63 more refineries slated to come on line in the next 18 months, some foreign farmers are betting that America will soon have less of the grain available to export.

Agricultural economists say Argentina, Brazil, South Africa and Mexico are among the nations planting more corn to pick up the slack in their domestic markets and perhaps score some export sales as well.

In addition, Mexico is gearing up to supply its own ethanol industry. Lawmakers are contemplating legislation that would require the state-owned oil company Pemex to oxygenate its gasoline with corn-based ethanol. Two plants are already under construction in the rural state of Sinaloa, where officials are looking to create employment and provide farmers with a reliable outlet for their harvests.

“We have to take advantage of any opportunity that represents a betterment of the countryside,” said Carlos Quevedo, director of agriculture for the state of Sinaloa. “We’re hoping that now abundance has arrived.”

Agriculture has been a constant source of trade friction between Mexico and the U.S. since the North American Free Trade Agreement was implemented in 1994. Although overall farm trade between the neighbors has exploded and Mexico has narrowed its agricultural trade gap, Mexican producers have complained bitterly about fat U.S. government subsidies in commodities such as corn, beans and milk powder, which they say makes it impossible for them to compete in those crucial staples.

Mexico has shed nearly 30% of its farm employment since NAFTA was implemented. Many of the jobs belonged to subsistence farmers who have fled for the United States.

Some rural advocates say another wave of migrants will be headed north next year, when all remaining tariffs and quotas on agricultural products are lifted as part of the NAFTA agreement.

But high corn prices are easing some of those concerns for now and putting more money in the pockets of rural dwellers such as Aldo Cruz Matillas, an 18-year-old farmhand in Puebla state. Local growers are paying him almost $11 a day to help with this year’s harvest, a 20% pay raise over last year.

On a recent afternoon the teenager guided a John Deere tractor slowly through a freshly harvested cornfield while his co-workers walked alongside the wagon hitched to the back of his machine. The grain is now so valuable that the men were scouring the ground for any stray ears missed by the combine that passed through earlier that day.

While the laborers stooped and tossed, Cruz spoke of his love for the countryside. His older brothers have migrated to the United States. But if he can make a living, Cruz said he would rather stay put.

“There is a lot more employment now,” he said. “More hope.”

Indeed, Puebla is experiencing a surge of new interest in corn production. About 5,300 farmers have joined a government-sponsored program to boost Mexico’s supplies of yellow corn, said agronomist Adelfo Salazar Mendoza, coordinator at the state’s Council of Corn Producers.

Most corn grown in Mexico is the white variety geared for human consumption in tortillas and cornmeal. It historically has fetched a premium over yellow corn, which is used for animal feed and ethanol, encouraging Mexican farmers to grow corn suitable for the kitchen table instead of for the feedlot.

Mexico last year imported nearly 4 million metric tons of yellow corn from the U.S. That’s more than three times the amount produced domestically, according to Mexican government figures.

But Puebla livestock farmers concerned about food security persuaded the state government four years ago to help them begin developing reliable sources of local production. Officials provided small grain farmers with as much as 25 acres worth of free seed, subsidized fertilizer and technical assistance. The government also helped finance a communal pool of tractors, combines, planters and other tools to boost productivity.

Growers signed contracts with a local livestock association, guaranteeing them an outlet for their crops. Livestock producers secured corn at prices below the market price, thanks to the government subsidy provided to corn farmers.

Salazar said the incentives last year resulted in the cultivation of 37,000 acres of yellow corn in Puebla. He said he expected that acreage to double this year given rising corn prices and as many as 10,000 farmers participating in the program. Salazar said similar programs were gaining momentum in other states across Mexico.

That’s good news for Raniero Ludoviko de la Vega, head of purchasing for a Puebla company that produces hogs, sheep and eggs. The operation imports most of its yellow corn from the U.S. and saw prices soar more than 60% last year. De la Vega said the local corn bought by his company was cheaper and of higher quality than the American stuff.

Although rising feed prices have hurt his company’s profitability, de la Vega said he was pleased to see Mexican grain farmers responding to a lucrative opportunity.

“I would rather the money stay in Mexico,” he said. “We need to support and revitalize our farm sector.”

Still, some experts say the current boon could be short-lived. Although some economists project surging demand fueled by U.S. ethanol production for years to come, others said falling crude prices and a global rush to plant more corn could end the party in a hurry.

“Any significant drop in oil prices could cause a shakeout,” said Pat Westhoff, program director at the Food and Agricultural Policy Research Institute at the University of Missouri. “You could see a lot of corn with no place to go.”

Mexico’s biggest concern now is the effect that corn prices are having on consumers. Mexico ended 2006 with a higher-than-expected inflation rate of 4.05%, driven largely by rising food costs. Meat, eggs and milk have all increased partly because of high animal feed costs.

But the biggest outcry is over the price of tortillas, for which the cost has risen more than 60% in some places over the last few weeks. A tortilleria in the city of Pachuca, northeast of Mexico City, hiked the price for a kilo of tortillas to 91 cents from 55 cents, according to a published survey.

The industry is citing a variety of factors, including tight supplies stemming from the U.S. bio-fuels craze. But experts say that theory doesn’t wash. White corn isn’t used to make ethanol. Mexico imports relatively small amounts of that grain from the U.S. And Mexican farmers produced a significant crop in 2006, more than 21 million metric tons, according to government estimates.

Critics blame grain speculators, retailers and tortilla giant Gruma, which dominates cornmeal production in Mexico, for using the ethanol buzz as an excuse to raise prices. Mexico’s antitrust agency announced Thursday that it would begin investigating possible price manipulation.

Gruma officials declined to be interviewed. But consumers are screaming.

“The poor are always affected the worst,” said Mexico City homemaker Amalia Cervantes Rosas, 67. She was dismayed to find that fresh tortillas at her local shop were selling for 73 cents a kilo, up 14% from last month. “Now we’re going to have to eat less tortillas.”

But for farmers such as the septuagenarian Amador, this harvest season is truly golden.

“There is a lot more spirit and optimism around here,” he said. “And a lot more money.”

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marla.dickerson@latimes.com

Times staff writer Cecilia Sanchez contributed to this report.