With tortilla prices rising in Mexico, fingers point north
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from World-Grain.com, January 18, 2007
MEXICO CITY, MEXICO - Rising tortillas prices in Mexico have created political tension there and have put a spotlight on rising ethanol demand and its potential effects on food prices.

Tortilla prices in Mexico have climbed 14% over the past year, 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 U.S.$4.08 a bushel on Jan. 17 at the Chicago Board of Trade (CBOT), up 98% from a year earlier. Prices were up nearly 50¢ 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.

Corn milling sources in the U.S. told World Grain’s sister publication Food Business News that white corn prices, used for corn tortillas in Mexico, trade at roughly a 50¢ per bushel premium to yellow corn, the commodity quoted on the CBOT.

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

Calderon’s government is generally regarded as business friendly, and leaders of the opposition, the Democratic Revolution Party, have called on the government to institute price controls on staple foods, including tortillas and milk.

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.

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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