Required Report - public distribution

**Date:** 3/28/2007

**GAIN Report Number:** MX7024

MX0000

**Mexico**

**Grain and Feed**

**Annual Report**

**2007**

**Approved by:**

![](media/image1.wmf)Suzanne E. Heinen

U.S. Embassy Mexico City

**Prepared by:**

Benjamin Juarez, Salvador Trejo, and Jeff Nawn

**Report Highlights:**

Mexico's total imports of grain and feed will likely increase in MY
2007/08, though at a more measured pace than the previous years, as the
impact of higher international grain prices is being felt by the Mexican
livestock production sector. High corn prices will lead many sorghum
producers to switch to corn production, as other grain production levels
will remain roughly the same as the last several years. Overall wheat
production is expected to increase marginally as a result of a return to
higher average yields, fueled by improved inputs and sufficient water
availability in wheat producing regions in the northwest and central
plateau. The removal of tariffs on U.S. rice to Mexico is expected to
contribute to the anticipated increase in rice exports. Rice output for
MY 2007/08 is forecast to increase slightly from the previous year's
estimate of 181,000 MT (milled), due to incentives provided through
government support programs.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Mexico \[MX1\]

\[MX\]

Table of Contents

[SECTION I. SITUATION AND OUTLOOK 3](#section-i.-situation-and-outlook)

[SECTION II. STATISTICAL TABLES 4](#section-ii.-statistical-tables)

[PS&D CORN 4](#psd-corn)

[PS&D SORGHUM 5](#psd-sorghum)

[PS&D DRY BEANS 5](#psd-dry-beans)

[PS&D WHEAT 6](#psd-wheat)

[PS&D RICE, MILLED 6](#psd-rice-milled)

[SECTION III. NARRATIVE ON SUPPLY, DEMAND, POLICY & MARKETING
7](#section-iii.-narrative-on-supply-demand-policy-marketing)

[CORN 7](#corn)

[Production 7](#production)

[Consumption 10](#consumption)

[Trade 10](#trade)

[Stocks 12](#stocks)

[Policy 12](#policy)

[SORGHUM 13](#sorghum-1)

[Production 13](#production-1)

[Consumption 14](#consumption-1)

[Trade 15](#trade-1)

[Stocks 15](#stocks-1)

[BEANS, DRY EDIBLE 15](#beans-dry-edible)

[Production 15](#production-2)

[Production Policy 17](#production-policy)

[Consumption 18](#consumption-2)

[Trade 18](#trade-2)

[Stocks 18](#stocks-2)

[Policy 18](#policy-1)

[WHEAT 19](#wheat)

[Production 19](#production-3)

[Consumption 19](#consumption-3)

[Trade 19](#trade-3)

[Stocks 20](#stocks-3)

[Marketing 20](#marketing)

[RICE 20](#rice)

[Production 20](#production-4)

[Consumption 21](#consumption-4)

[Trade 21](#trade-4)

[Stocks 21](#stocks-4)

[Policy 21](#policy-2)

[Marketing 21](#marketing-1)

# SECTION I. SITUATION AND OUTLOOK

**Corn:** Mexican corn production for MY 2007/08 (Oct‑Sep) is forecast
at 23.2 MMT, roughly a five percent increase over MY 2006/2007. This
increase is primarily attributable to a five percent increase in
harvested area, not to higher yields. Various industry and Government of
Mexico (GOM) sources have indicated that Mexican farmers are expected to
boost plantings in the coming year in response to higher corn prices.
The total production and harvested area estimates for MY 2005/06 and
2006/07 have remained unchanged.

The MY 2007/2008 corn import estimate is significantly higher than the
MY 2006/2007 estimate. However, cracked corn imports are not reflected
in the corn PSD table. Once these cracked corn import volumes are
factored into the total import figure, corn imports in 2007/08 register
an estimated increase of only 2 percent over the revised estimate for MY
2006/07 (in MY 2006/07 Mexico imported 8.0 MMT of corn and 2.0 MMT of
cracked corn). Because of policy changes that are taking place in the
next year, due to the full implementation of the North America Free
Trade Agreement (NAFTA), there will no longer be a need to import
cracked corn. Thus, in MY 2007/08 importers will replace traditional
cracked corn import volumes with yellow corn. The corn import estimate
for MY 2005/06 has been revised downward based on final official data
from the Secretariat of Economy (SE).

The minimum Tariff Rate Quota (TRQ) for U.S. corn under NAFTA is 3.672
MMT for 2007. This TRQ is administered through government issued import
permits (cupos), which are granted to importers and industry. As of
March 12, 2007 the Secretariat of Economy (SE) has issued permits for
approximately 6.572 MMT of corn. This amount includes the 2007 NAFTA TRQ
as well as unilateral TRQs for corn announced on January 23 and March
12, 2007 (See MX7009 & MX7020).

# 

**Sorghum:** Mexican sorghum production is forecast to decline by
approximately 9.5 percent in MY 2007/08, as farmers are opting to move
more land into corn production. Due to revised SAGARPA data, and
preliminary information from private sources, USDA/Mexico estimates for
sorghum production and harvested area for MY 2006/07 were adjusted
downward. MY 2005/06 production and harvested area estimates remain
unchanged. The MY 2006/07 import estimate has been revised downward to
2.1 MMT as the result of decreased demand. MY 2007/08 imports are
forecast to increase to 3.0 MMT because of the need to restore stocks.

**Beans:** The MY 2006/07 production estimate has been increased based
on favorable weather conditions and adequate precipitation. Dry edible
bean production in Mexico is expected to decline by less than three
percent to 1.23 MMT in MY 2007/08 because of a reduction in planted
area. As a result, MY 2007/2008 imports are forecast to increase to
approximately 135,000 MT. Dry bean imports for MY 2006/07 are estimated
to decrease to 110,000 MT, based on a higher than expected domestic
production and lower than anticipated consumption figures. Dry edible
bean consumption in MY 2007/2008 is expected to increase by
approximately 1.5 percent over last year. This higher consumption figure
is drive by both population growth and higher poultry and red meat
prices, which have led many lower income consumers to substitute meat
for beans as a source of protein in their diets. Poultry and beef meat
producers anticipate that prices will continue to rise on higher feed
costs.

**Wheat:** Total Mexican wheat production for MY 2007/08 is forecast at
3.26 MMT. This production is aided by the availability of water for
irrigation in Mexico's durum wheat producing regions in the northwest,
comprised of the states of Sonora and Baja California. The bread wheat
producing states of the central plateau in Mexico also report adequate
availability of water and the application of additional inputs to
improve yields. MY 2007/2008 imports and overall consumption figures are
not significantly different than those of previous years.

**Rice:** Rice production for MY 2007/08 is forecast to increase by 1.1
percent over the previous year's revised estimate of 181,000 MT (milled
basis), primarily driven by government incentives. MY 2007/2008 imports
are expected to be roughly six percent greater than MY 2006/2007.

During the week of March 12, 2007, Mexican authorities stopped several
shipments of rice at a number of border crossing points, requesting that
shipments be certified as free of genetically modified organisms (GMOs),
as mandated under a very strict interpretation of Mexico's Biosafety
Law. U.S. government officials are working closely with the Mexican
Secretariats of Health and Agriculture to resolve this issue, which is
the result of the detection of a low level presence of the genetically
engineered Liberty Link trait in some shipments of U.S. long-grain rice
exported to Mexico. The Secretariat of Health has been analyzing the
Liberty Link trait since 2003, and is expected to approve of it as safe
for human consumption in the next several weeks, which will ensure that
the rice trade can continue without further interruptions.

# SECTION II. STATISTICAL TABLES

## PS&D CORN

<table>
<colgroup>
<col style="width: 15%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><strong>PSD Table</strong></td>
</tr>
<tr class="even">
<td><strong>Country</strong></td>
<td colspan="9"><h6 id="mexico">Mexico</h6></td>
</tr>
<tr class="odd">
<td><strong>Commodity</strong></td>
<td colspan="4"><strong>Corn</strong></td>
<td colspan="5"><strong>(1000 HA)(1000 MT)(MT/HA)</strong></td>
</tr>
<tr class="even">
<td rowspan="2"></td>
<td colspan="3"><strong>2005 Revised</strong></td>
<td colspan="3"><strong>2006 Estimate</strong></td>
<td colspan="3"><strong>2007 Forecast</strong></td>
</tr>
<tr class="odd">
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
</tr>
<tr class="even">
<td><p id="market-year-begin" class="heading">Market Year Begin</p></td>
<td colspan="3"><strong>10/2005</strong></td>
<td colspan="3"><strong>10/2006</strong></td>
<td colspan="3"><strong>10/2007</strong></td>
</tr>
<tr class="odd">
<td>Area Harvested</td>
<td>6,640</td>
<td>6,640</td>
<td>6,640</td>
<td>7,300</td>
<td>7,300</td>
<td>7,400</td>
<td>0</td>
<td>0</td>
<td>7,750</td>
</tr>
<tr class="even">
<td>Beginning Stocks</td>
<td>4,529</td>
<td>4,529</td>
<td>4,529</td>
<td>2,666</td>
<td>2,666</td>
<td>2,472</td>
<td>2,666</td>
<td>2,666</td>
<td>2,172</td>
</tr>
<tr class="odd">
<td>Production</td>
<td>19,500</td>
<td>19,500</td>
<td>19,500</td>
<td>22,000</td>
<td>22,000</td>
<td>22,000</td>
<td>0</td>
<td>0</td>
<td>23,200</td>
</tr>
<tr class="even">
<td>MY Imports</td>
<td>6,787</td>
<td>6,787</td>
<td>6,544</td>
<td>6,800</td>
<td>6,800</td>
<td>8,000</td>
<td>0</td>
<td>0</td>
<td>10,200</td>
</tr>
<tr class="odd">
<td>TY Imports</td>
<td>6,787</td>
<td>6,787</td>
<td>6,544</td>
<td>6,800</td>
<td>6,800</td>
<td>8,000</td>
<td>0</td>
<td>0</td>
<td>10,200</td>
</tr>
<tr class="even">
<td>TY Imp. From U.S.</td>
<td>6,765</td>
<td>6,765</td>
<td>6,544</td>
<td>0</td>
<td>6,800</td>
<td>8,000</td>
<td>0</td>
<td>0</td>
<td>10,200</td>
</tr>
<tr class="odd">
<td><strong>Total Supply</strong></td>
<td>30,816</td>
<td>30,816</td>
<td>30,573</td>
<td>31,466</td>
<td>31,466</td>
<td>32,472</td>
<td>2,666</td>
<td>2,666</td>
<td>35,572</td>
</tr>
<tr class="even">
<td>MY Exports</td>
<td>250</td>
<td>250</td>
<td>201</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>TY Exports</td>
<td>250</td>
<td>250</td>
<td>201</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Feed Consumption</td>
<td>12,400</td>
<td>12,400</td>
<td>12,400</td>
<td>13,200</td>
<td>13,200</td>
<td>14,700</td>
<td>0</td>
<td>0</td>
<td>17,500</td>
</tr>
<tr class="odd">
<td>FSI Consumption</td>
<td>15,500</td>
<td>15,500</td>
<td>15,500</td>
<td>15,600</td>
<td>15,600</td>
<td>15,600</td>
<td>0</td>
<td>0</td>
<td>15,800</td>
</tr>
<tr class="even">
<td>Total Consumption</td>
<td>27,900</td>
<td>27,900</td>
<td>27,900</td>
<td>28,800</td>
<td>28,800</td>
<td>30,300</td>
<td>0</td>
<td>0</td>
<td>33,300</td>
</tr>
<tr class="odd">
<td>Ending Stocks</td>
<td>2,666</td>
<td>2,666</td>
<td>2,427</td>
<td>2,666</td>
<td>2,666</td>
<td>2,172</td>
<td>0</td>
<td>0</td>
<td>2,272</td>
</tr>
<tr class="even">
<td><strong>Total Distribution</strong></td>
<td>30,816</td>
<td>30,816</td>
<td>30,573</td>
<td>31,466</td>
<td>31,466</td>
<td>32,472</td>
<td>0</td>
<td>0</td>
<td>35,572</td>
</tr>
<tr class="odd">
<td>Yield</td>
<td>2.9367469</td>
<td>2.9367469</td>
<td>2.936747</td>
<td>3.0136986</td>
<td>3.0136986</td>
<td>2.9729729</td>
<td>0</td>
<td>0</td>
<td>2.9935483</td>
</tr>
</tbody>
</table>

#### 

#### 

## PS&D SORGHUM

<table>
<colgroup>
<col style="width: 15%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><p id="psd-table" class="heading">PSD Table</p></td>
</tr>
<tr class="even">
<td><strong>Country</strong></td>
<td colspan="9"><p id="mexico-1" class="heading">Mexico</p></td>
</tr>
<tr class="odd">
<td><strong>Commodity</strong></td>
<td colspan="4"><p id="sorghum" class="heading">Sorghum</p></td>
<td colspan="5"><strong>(1000 HA)(1000 MT)(MT/HA)</strong></td>
</tr>
<tr class="even">
<td rowspan="2"></td>
<td colspan="3"><strong>2005 Revised</strong></td>
<td colspan="3"><strong>2006 Estimate</strong></td>
<td colspan="3"><strong>2007 Forecast</strong></td>
</tr>
<tr class="odd">
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p id="estimate" class="heading">Estimate</p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
</tr>
<tr class="even">
<td>Market Year Begin</td>
<td colspan="3"><strong>10/2005</strong></td>
<td colspan="3"><strong>10/2006</strong></td>
<td colspan="3"><strong>10/2007</strong></td>
</tr>
<tr class="odd">
<td>Area Harvested</td>
<td>1,570</td>
<td>1,570</td>
<td>1,570</td>
<td>1,750</td>
<td>1,750</td>
<td>1,550</td>
<td>0</td>
<td>0</td>
<td>1,400</td>
</tr>
<tr class="even">
<td>Beginning Stocks</td>
<td>624</td>
<td>624</td>
<td>624</td>
<td>553</td>
<td>553</td>
<td>553</td>
<td>503</td>
<td>503</td>
<td>403</td>
</tr>
<tr class="odd">
<td>Production</td>
<td>5,500</td>
<td>5,500</td>
<td>5,500</td>
<td>6,150</td>
<td>6,150</td>
<td>5,750</td>
<td>0</td>
<td>0</td>
<td>5,200</td>
</tr>
<tr class="even">
<td>MY Imports</td>
<td>3,029</td>
<td>3,029</td>
<td>3,029</td>
<td>2,500</td>
<td>2,500</td>
<td>2,100</td>
<td>0</td>
<td>0</td>
<td>3,000</td>
</tr>
<tr class="odd">
<td>TY Imports</td>
<td>3,029</td>
<td>3,029</td>
<td>3,029</td>
<td>2,500</td>
<td>2,500</td>
<td>2,100</td>
<td>0</td>
<td>0</td>
<td>3,000</td>
</tr>
<tr class="even">
<td>TY Imp. from U.S.</td>
<td>3,029</td>
<td>3,029</td>
<td>3,029</td>
<td>0</td>
<td>2,500</td>
<td>2,100</td>
<td>0</td>
<td>0</td>
<td>3,000</td>
</tr>
<tr class="odd">
<td><strong>Total Supply</strong></td>
<td>9,153</td>
<td>9,153</td>
<td>9,153</td>
<td>9,203</td>
<td>9,203</td>
<td>8,403</td>
<td>503</td>
<td>503</td>
<td>8,603</td>
</tr>
<tr class="even">
<td>MY Exports</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>TY Exports</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Feed Consumption</td>
<td>8,500</td>
<td>8,500</td>
<td>8,500</td>
<td>8,600</td>
<td>8,600</td>
<td>7,900</td>
<td>0</td>
<td>0</td>
<td>8,200</td>
</tr>
<tr class="odd">
<td>FSI Consumption</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>100</td>
<td>0</td>
<td>0</td>
<td>100</td>
</tr>
<tr class="even">
<td>Total Consumption</td>
<td>8,600</td>
<td>8,600</td>
<td>8,600</td>
<td>8,700</td>
<td>8,700</td>
<td>8,000</td>
<td>0</td>
<td>0</td>
<td>8,300</td>
</tr>
<tr class="odd">
<td>Ending Stocks</td>
<td>553</td>
<td>553</td>
<td>553</td>
<td>503</td>
<td>503</td>
<td>403</td>
<td>0</td>
<td>0</td>
<td>303</td>
</tr>
<tr class="even">
<td><strong>Total Distribution</strong></td>
<td>9,153</td>
<td>9,153</td>
<td>9,153</td>
<td>9,203</td>
<td>9,203</td>
<td>8,403</td>
<td>0</td>
<td>0</td>
<td>8,603</td>
</tr>
<tr class="odd">
<td>Yield</td>
<td>3.5031847</td>
<td>3.5031847</td>
<td>3.5031847</td>
<td>3.5142857</td>
<td>3.5142857</td>
<td>3.7096774</td>
<td>0</td>
<td>0</td>
<td>3.7142857</td>
</tr>
</tbody>
</table>

## PS&D DRY BEANS

<table>
<colgroup>
<col style="width: 16%" />
<col style="width: 8%" />
<col style="width: 10%" />
<col style="width: 10%" />
<col style="width: 8%" />
<col style="width: 10%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><p id="psd-table-1" class="heading">PSD Table</p></td>
</tr>
<tr class="even">
<td><strong>Country</strong></td>
<td colspan="9"><strong>Mexico</strong></td>
</tr>
<tr class="odd">
<td><strong>Commodity</strong></td>
<td colspan="4"><strong>Beans</strong></td>
<td colspan="5"><strong>(1000 HA)(1000 MT)(MT/HA)</strong></td>
</tr>
<tr class="even">
<td rowspan="2"></td>
<td colspan="3"><p id="revised" class="heading">2005 Revised</p></td>
<td colspan="3"><strong>2006 Estimate</strong></td>
<td colspan="3"><strong>2007 Forecast</strong></td>
</tr>
<tr class="odd">
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p id="new" class="heading">New</p></td>
</tr>
<tr class="even">
<td>Market Year Begin</td>
<td colspan="3"><strong>10/2005</strong></td>
<td colspan="3"><strong>10/2006</strong></td>
<td colspan="3"><strong>10/2007</strong></td>
</tr>
<tr class="odd">
<td>Area Harvested</td>
<td>0</td>
<td>1,236</td>
<td>1,296</td>
<td>0</td>
<td>1,680</td>
<td>1,680</td>
<td>0</td>
<td>0</td>
<td>1,640</td>
</tr>
<tr class="even">
<td>Beginning Stocks</td>
<td>0</td>
<td>448</td>
<td>448</td>
<td>0</td>
<td>59</td>
<td>65</td>
<td>0</td>
<td>69</td>
<td>65</td>
</tr>
<tr class="odd">
<td>Production</td>
<td>0</td>
<td>866</td>
<td>874</td>
<td>0</td>
<td>1,250</td>
<td>1,260</td>
<td>0</td>
<td>0</td>
<td>1,230</td>
</tr>
<tr class="even">
<td>MY Imports</td>
<td>0</td>
<td>130</td>
<td>117</td>
<td>0</td>
<td>150</td>
<td>110</td>
<td>0</td>
<td>0</td>
<td>135</td>
</tr>
<tr class="odd">
<td>TY Imports</td>
<td>0</td>
<td>130</td>
<td>117</td>
<td>0</td>
<td>150</td>
<td>110</td>
<td>0</td>
<td>0</td>
<td>135</td>
</tr>
<tr class="even">
<td>TY Imp. from U.S.</td>
<td>0</td>
<td>125</td>
<td>113</td>
<td>0</td>
<td>145</td>
<td>105</td>
<td>0</td>
<td>0</td>
<td>125</td>
</tr>
<tr class="odd">
<td><strong>Total Supply</strong></td>
<td>0</td>
<td>1,444</td>
<td>1,439</td>
<td>0</td>
<td>1,459</td>
<td>1,435</td>
<td>0</td>
<td>69</td>
<td>1,430</td>
</tr>
<tr class="even">
<td>MY Exports</td>
<td>0</td>
<td>5</td>
<td>14</td>
<td>0</td>
<td>0</td>
<td>10</td>
<td>0</td>
<td>0</td>
<td>5</td>
</tr>
<tr class="odd">
<td>TY Exports</td>
<td>0</td>
<td>5</td>
<td>14</td>
<td>0</td>
<td>0</td>
<td>10</td>
<td>0</td>
<td>0</td>
<td>5</td>
</tr>
<tr class="even">
<td>Feed Consumption</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>FSI Consumption</td>
<td>0</td>
<td>1,380</td>
<td>1,360</td>
<td>0</td>
<td>1,390</td>
<td>1,360</td>
<td>0</td>
<td>0</td>
<td>1,380</td>
</tr>
<tr class="even">
<td>Total Consumption</td>
<td>0</td>
<td>1,380</td>
<td>1,360</td>
<td>0</td>
<td>1,390</td>
<td>1,360</td>
<td>0</td>
<td>0</td>
<td>1,380</td>
</tr>
<tr class="odd">
<td>Ending Stocks</td>
<td>0</td>
<td>59</td>
<td>65</td>
<td>0</td>
<td>69</td>
<td>65</td>
<td>0</td>
<td>0</td>
<td>45</td>
</tr>
<tr class="even">
<td><strong>Total Distribution</strong></td>
<td>0</td>
<td>1,444</td>
<td>1,439</td>
<td>0</td>
<td>1,459</td>
<td>1,435</td>
<td>0</td>
<td>0</td>
<td>1,430</td>
</tr>
<tr class="odd">
<td>Yield</td>
<td>0</td>
<td>0.7006472</td>
<td>0.6743827</td>
<td>0</td>
<td>0.7440476</td>
<td>0.75</td>
<td>0</td>
<td>0</td>
<td>0.75</td>
</tr>
</tbody>
</table>

## PS&D WHEAT

<table>
<colgroup>
<col style="width: 20%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 9%" />
<col style="width: 8%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><strong>PSD Table</strong></td>
</tr>
<tr class="even">
<td><strong>Country</strong></td>
<td colspan="9"><strong>Mexico</strong></td>
</tr>
<tr class="odd">
<td><strong>Commodity</strong></td>
<td colspan="5"><strong>Wheat</strong></td>
<td colspan="4"><strong>(1000 HA)(1000MT)(MT/HA)</strong></td>
</tr>
<tr class="even">
<td rowspan="2"></td>
<td colspan="3"><strong>2005 Revised</strong></td>
<td colspan="3"><strong>2006 Estimate</strong></td>
<td colspan="3"><strong>2007 Forecast</strong></td>
</tr>
<tr class="odd">
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
</tr>
<tr class="even">
<td>Market Year Begin</td>
<td colspan="3"><strong>01/2005</strong></td>
<td colspan="3"><strong>01/2006</strong></td>
<td colspan="3"><strong>01/2007</strong></td>
</tr>
<tr class="odd">
<td>Area Harvested</td>
<td>550</td>
<td>550</td>
<td>550</td>
<td>570</td>
<td>567</td>
<td>570</td>
<td>0</td>
<td>0</td>
<td>575</td>
</tr>
<tr class="even">
<td>Beginning Stocks</td>
<td>376</td>
<td>493</td>
<td>376</td>
<td>312</td>
<td>400</td>
<td>312</td>
<td>0</td>
<td>0</td>
<td>340</td>
</tr>
<tr class="odd">
<td>Production</td>
<td>3,020</td>
<td>3,021</td>
<td>3,020</td>
<td>3,100</td>
<td>3,100</td>
<td>3,240</td>
<td>0</td>
<td>0</td>
<td>3,260</td>
</tr>
<tr class="even">
<td>MY Imports</td>
<td>3,549</td>
<td>3,600</td>
<td>3,549</td>
<td>3,600</td>
<td>3,650</td>
<td>3,549</td>
<td>0</td>
<td>0</td>
<td>3,600</td>
</tr>
<tr class="odd">
<td>TY Imports</td>
<td>3,549</td>
<td>3,600</td>
<td>3,549</td>
<td>3,600</td>
<td>3,650</td>
<td>3,549</td>
<td>0</td>
<td>0</td>
<td>3,600</td>
</tr>
<tr class="even">
<td>TY Imp. From U.S.</td>
<td>2,746</td>
<td>0</td>
<td>2,746</td>
<td>0</td>
<td>0</td>
<td>2,289</td>
<td>0</td>
<td>0</td>
<td>2,295</td>
</tr>
<tr class="odd">
<td><strong>Total Supply</strong></td>
<td>6,945</td>
<td>7,114</td>
<td>6,945</td>
<td>7,012</td>
<td>7,150</td>
<td>7,101</td>
<td>0</td>
<td>0</td>
<td>7,200</td>
</tr>
<tr class="even">
<td>MY Exports</td>
<td>533</td>
<td>500</td>
<td>533</td>
<td>500</td>
<td>500</td>
<td>536</td>
<td>0</td>
<td>0</td>
<td>550</td>
</tr>
<tr class="odd">
<td>TY Exports</td>
<td>533</td>
<td>500</td>
<td>533</td>
<td>500</td>
<td>500</td>
<td>536</td>
<td>0</td>
<td>0</td>
<td>550</td>
</tr>
<tr class="even">
<td>Feed Consumption</td>
<td>100</td>
<td>200</td>
<td>100</td>
<td>100</td>
<td>200</td>
<td>200</td>
<td>0</td>
<td>0</td>
<td>200</td>
</tr>
<tr class="odd">
<td>FSI Consumption</td>
<td>6,000</td>
<td>6,014</td>
<td>6,000</td>
<td>6,100</td>
<td>6,025</td>
<td>6,025</td>
<td>0</td>
<td>0</td>
<td>6,050</td>
</tr>
<tr class="even">
<td>Total Consumption</td>
<td>6,100</td>
<td>6,214</td>
<td>6,100</td>
<td>6,200</td>
<td>6,225</td>
<td>6,225</td>
<td>0</td>
<td>0</td>
<td>6,250</td>
</tr>
<tr class="odd">
<td>Ending Stocks</td>
<td>312</td>
<td>400</td>
<td>312</td>
<td>312</td>
<td>425</td>
<td>340</td>
<td>0</td>
<td>0</td>
<td>400</td>
</tr>
<tr class="even">
<td><strong>Total Distribution</strong></td>
<td>6,945</td>
<td>7,114</td>
<td>6,945</td>
<td>7,012</td>
<td>7,150</td>
<td>7,101</td>
<td>0</td>
<td>0</td>
<td>7,200</td>
</tr>
</tbody>
</table>

# 

## PS&D RICE, MILLED

<table>
<colgroup>
<col style="width: 20%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 8%" />
<col style="width: 9%" />
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 9%" />
<col style="width: 9%" />
</colgroup>
<tbody>
<tr class="odd">
<td colspan="10"><strong>PSD Table</strong></td>
</tr>
<tr class="even">
<td><strong>Country</strong></td>
<td colspan="9"><strong>Mexico</strong></td>
</tr>
<tr class="odd">
<td><strong>Commodity</strong></td>
<td colspan="5"><strong>Rice, Milled</strong></td>
<td colspan="4"><strong>(1000 HA)(1000MT)(MT/HA)</strong></td>
</tr>
<tr class="even">
<td rowspan="2"></td>
<td colspan="3"><strong>2005 Revised</strong></td>
<td colspan="3"><strong>2006 Estimate</strong></td>
<td colspan="3"><strong>2007 Forecast</strong></td>
</tr>
<tr class="odd">
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p><strong>New</strong></p></td>
<td><p><strong>USDA</strong></p>
<p><strong>Official</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p></td>
<td><p><strong>Post</strong></p>
<p><strong>Estimate</strong></p>
<p id="new-1" class="heading">New</p></td>
</tr>
<tr class="even">
<td>Market Year Begin</td>
<td colspan="3"><strong>01/2005</strong></td>
<td colspan="3"><strong>01/2006</strong></td>
<td colspan="3"><strong>01/2007</strong></td>
</tr>
<tr class="odd">
<td>Area Harvested</td>
<td>52</td>
<td>52</td>
<td>52</td>
<td>52</td>
<td>52</td>
<td>52</td>
<td>0</td>
<td>0</td>
<td>54</td>
</tr>
<tr class="even">
<td>Beginning Stocks</td>
<td>174</td>
<td>199</td>
<td>174</td>
<td>180</td>
<td>204</td>
<td>180</td>
<td>0</td>
<td>0</td>
<td>146</td>
</tr>
<tr class="odd">
<td>Milled Production</td>
<td>181</td>
<td>181</td>
<td>181</td>
<td>181</td>
<td>181</td>
<td>181</td>
<td>0</td>
<td>0</td>
<td>183</td>
</tr>
<tr class="even">
<td>Rough Poduction</td>
<td>271</td>
<td>271</td>
<td>271</td>
<td>271</td>
<td>271</td>
<td>271</td>
<td>0</td>
<td>0</td>
<td>275</td>
</tr>
<tr class="odd">
<td>Milling Rate (.9999)</td>
<td>.6667</td>
<td>.6667</td>
<td>.6667</td>
<td>.6667</td>
<td>.6667</td>
<td>.6667</td>
<td>0</td>
<td>0</td>
<td>.6667</td>
</tr>
<tr class="even">
<td>MY Imports</td>
<td>600</td>
<td>498</td>
<td>600</td>
<td>600</td>
<td>500</td>
<td>535</td>
<td>0</td>
<td>0</td>
<td>570</td>
</tr>
<tr class="odd">
<td>TY Imports</td>
<td>600</td>
<td>498</td>
<td>600</td>
<td>600</td>
<td>500</td>
<td>535</td>
<td>0</td>
<td>0</td>
<td>570</td>
</tr>
<tr class="even">
<td>TY Imp. From U.S.</td>
<td>600</td>
<td>498</td>
<td>600</td>
<td>600</td>
<td>500</td>
<td>535</td>
<td>0</td>
<td>0</td>
<td>570</td>
</tr>
<tr class="odd">
<td><strong>Total Supply</strong></td>
<td>955</td>
<td>878</td>
<td>955</td>
<td>961</td>
<td>885</td>
<td>896</td>
<td>0</td>
<td>0</td>
<td>899</td>
</tr>
<tr class="even">
<td>MY Exports</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="odd">
<td>TY Exports</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
<td>0</td>
</tr>
<tr class="even">
<td>Total Consumption</td>
<td>775</td>
<td>674</td>
<td>775</td>
<td>800</td>
<td>680</td>
<td>750</td>
<td>0</td>
<td>0</td>
<td>750</td>
</tr>
<tr class="odd">
<td>Ending Stocks</td>
<td>180</td>
<td>204</td>
<td>180</td>
<td>161</td>
<td>205</td>
<td>146</td>
<td>0</td>
<td>0</td>
<td>149</td>
</tr>
<tr class="even">
<td><strong>Total Distribution</strong></td>
<td>955</td>
<td>878</td>
<td>955</td>
<td>961</td>
<td>885</td>
<td>896</td>
<td>0</td>
<td>0</td>
<td>899</td>
</tr>
</tbody>
</table>

#  

# SECTION III. NARRATIVE ON SUPPLY, DEMAND, POLICY & MARKETING

## CORN

### Production

Corn production is estimated to increase by five percent to 23.2 million
metric tons (MMT) for MY 2007/08 (October/ September), reflecting an
increase in harvested area and assuming normal weather conditions.
Various industry and GOM sources have indicated that Mexican farmers are
expected to boost plantings in the coming year in response to higher
corn prices. Moreover, some traders and buyers indicate that the price
ratio between corn and sorghum is expected to continue to be more
favorable for corn during MY 2007/08. As a result, many farmers will opt
to plant corn instead of alternative crops such as sorghum, dry beans,
cotton and even wheat.

However, there are many factors other than profit potential that will
enter into growers' planting decisions. For example, for some farmers
the decision is largely a function of whether seeds are available, and
if they have the necessary equipment, drying capacity, and storage
capacity to handle more corn. Others growers do not want to be overly
dependent on one crop, in the event of bad weather or severe price
fluctuations.

The predominant factor in corn production continues to be weather
conditions, given that over 65 percent of Mexico's corn production area
is non-irrigated. Despite this externality, most sources agree that
there will be a major jump in corn plantings due to the attractive
prices. Weather during the 2006 spring/summer crop cycle was generally
favorable, except at the beginning of the planting season when rain
caused some delays in the Bajio region, which encompasses the states of
Jalisco, Guanajuato and Michoacan. During the growing season weather
conditions improved, allowing for relatively higher yields. The overall
yield for the MY 2007/08 corn crop in Mexico is expected to reach 2.993
MT/ha, a very slight increase over the MY 2006/07 average yield,
assuming normal rainfall and weather conditions. Yields continue to vary
significantly throughout the country, depending in large part on the
level of technology used. For example, small indigenous subsistence
farmers in Mexico\'s southern state of Chiapas produce as little as 300
kilograms per hectare, while in the northwest state of Sinaloa, where
corn is produced using advanced technology, yields can reach up to 10
MT/ha.

The total production estimates for MY 2004/05 and 2005/06 have remained
unchanged. However, it should be noted that based on official
preliminary information, corn production in the main producing states
increased by over 19.9 percent in the 2006 spring/summer crop compared
with the same crop a year earlier. Below is a graph illustrating the
difference in the 2005 vs. 2006 spring/summer crop production in the
main producing states, with data as of December 31, 2006:

![](media/image2.wmf)

In Mexico there are two corn production cycles each year; a
spring/summer cycle, and a fall/winter cycle. Between 70 and 75 percent
of the total corn production is grown in the spring/summer cycle, which
is harvested from October through December. Since 90 percent of the corn
produced in spring/summer cycle is rain fed, the rains starting in June
are critical to crop production. The main producing states of this crop
cycle are Jalisco, Mexico, Michoacan, Chiapas, Guanajuato, and Puebla.
These states account for approximately 55 percent of the spring/summer
corn production. The fall/winter crop is harvested in May through
September, and 60 percent of this crop is irrigated. The main producing
states of this cycle are Sinaloa, Tamaulipas, and Veracruz, accounting
for approximately 85 percent of this fall/winter crop.

The 2006/07-fall/winter-corn crop production cycle is estimated at 5.87
MMT, practically unchanged from the previous year. Crop conditions for
corn planted in September and October have been near ideal, due to
abundant water reservoir levels in Sinaloa dams. According to the
National Water Commission, currently the reservoir levels in the
northwest region of Mexico are approximately 23 percent higher than a
year ago. Moreover, there are forecasts of increased precipitation
related to the current El Nino conditions in the tropical Pacific, which
historically have been associated with above average winter
precipitation in northern Mexico. Yields are forecast at 5.870 MT per
hectare for the 2006/07 fall/winter crop cycle, which is higher than
registered yields for the same cycle a year earlier (5.386 MT/Ha), and
reflects the favorable weather conditions.

The central pacific coast state of Sinaloa is the main source of
commercial white corn in Mexico for the fall corn crop, representing
approximately 66 percent of total fall/winter corn production. Harvest
occurs from May to June. The majority of the corn grown in the northwest
part of Sinaloa is produced using advanced technology, similar to what
is used in the United States. In addition, large areas are under
irrigation. Due to favorable weather conditions, the 2006 spring/summer
corn crop was reported to be of relatively high quality.

Recently the Secretariat of Agriculture, Livestock, Rural Development,
Fisheries and Food (SAGARPA) started using a new methodology to estimate
production costs of farm inputs for corn and other important
commodities. Total input costs for corn production in the main corn
producing states, using this new estimation technique, are as follows:

+-----------------------+-------------------------+--------------------+
| **Corn Production     |                         |                    |
| Cost Budget for       |                         |                    |
| Several States**      |                         |                    |
|                       |                         |                    |
| **& Crop Cycles**     |                         |                    |
|                       |                         |                    |
| **(Pesos per          |                         |                    |
| Hectare)**            |                         |                    |
+-----------------------+-------------------------+--------------------+
| **State**             | **2005**                | **2005/06**        |
|                       |                         |                    |
|                       | **Spring/Summer**       | **Fall/Winter**    |
+-----------------------+-------------------------+--------------------+
| Chiapas               | 5,754.19                | N/A                |
+-----------------------+-------------------------+--------------------+
| Jalisco               | 5,888.00                | N/A                |
+-----------------------+-------------------------+--------------------+
| State of Mexico       | 5,870.60                | N/A                |
+-----------------------+-------------------------+--------------------+
| Sinaloa\*             | N/A                     | 5,592.20           |
+-----------------------+-------------------------+--------------------+
| Tamaulipas\*          | N/A                     | 6,807.50           |
+-----------------------+-------------------------+--------------------+
| Veracruz              | N/A                     | 5,512.00           |
+-----------------------+-------------------------+--------------------+

*\* Irrigated Area*

*Exchange Rate as of February 22, 2007: U.S. \$1.00 = 11.13 Pesos*

*Source: SIAP/SAGARPA*

A flat‑rate payment of 963 pesos/ha (roughly U.S. \$86.52/ha) was
provided to corn, sorghum, wheat, rice, and dry beans farmers for the
2006 spring/summer crop cycle. This payment plan will be repeated for
the 2006/07-fall/winter crop under PROCAMPO, the Mexican domestic
agriculture support program. The GOM policy is that farmers with
production areas of between one and five hectares will receive 1,160
pesos per hectare (approximately U.S. \$104.22/ha). The GOM has yet to
announce the payment amount for the 2007 spring/summer crop cycle.

**HISTORY OF PROCAMPO PAYMENTS, 1994-2005**

**(Pesos per hectare)**

  -------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
  **Crop Cycle** **1994**   **1995**   **1996**   **1997**   **1998**   **1999**   **2000**   **2001**   **2002**   **2003**   **2004**   **2005**

  Fall - Winter  1,416      1,254      1,060      995        980        958        974        1,012      999        979        948        963

  Spring --      1,502      1,379      1,166      1,143      1,104      1,083      1,071      1,079      1,052      \-         \-         \-
  Summer                                                                                                                                  

  Preferential   \-         \-         \-         \-         \-         \-         \-         \-         \-         1,156      1,174      1,160
  rate 1/                                                                                                                                 

  Normal rate    \-         \-         \-         \-         \-         \-         \-         \-         \-         1,015      980        963
  -------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------

1/ Starting in 2003, a preferential payment rate was established for
non-irrigated areas during the Spring-Summer cycle.

Source: Sixth State-of-the-Union Report, Vicente Fox Quesada, President
of Mexico.

The GOM has continued to encourage forward contract purchases between
farmers and yellow corn buyers in an attempt to influence production
patterns (see MX2037, MX3028, and MX5022). For the
2006/07-fall/winter-crop cycle, for example, SAGARPA officials brokered
an agreement between Tamaulipas growers and private buyers for the
forward contract of approximately 250,000 MT of yellow corn. According
to official sources, at the national level, total yellow corn production
was approximately 1.330 MMT in MY 2005/2006. For MY 2006/2007 the same
sources estimated that production will reach 1.685 MMT. It is expected
that this trend will continue for the next few years, as the GOM
recently announced that it would continue to support the forward
contracts program through 2012 (See MX7016).

### Consumption

For MY 2007/08 total consumption is forecast to reach 33.33 MMT, an
increase of approximately 10 percent over last year's revised estimate.
The MY 2006/07 corn consumption estimate has been revised upward to 30.3
MMT, an increase of 5.2 percent over the previous estimate. The dramatic
increase in MY 2007/2008 is primarily attributed to the fact that
importers no longer need to rely on cracked corn imports to meet demand,
and to avoid costly over quota duties. Cracked corn has historically not
been factored into the overall consumption figures. If it were to have
been, MY 2006/07 consumption would be roughly 32.3 MMT (30.3 MMT in
corn, plus 2.0 MMT in cracked corn), and thus MY 2007/08 consumption
estimates would register an increase of only 3 percent. This lower
estimate is more in line with national trends, and more indicative of
what is occurring in this market.

Domestically produced corn is predominately white corn varieties and is
used for human consumption. It is a very important crop to the country,
as tortillas are a staple of the Mexican diet, with an annual per capita
consumption of 65 kilograms. Much of Mexico's lower income population
relies upon tortillas for the bulk of their daily caloric intake. In
2004 corn tortillas accounted for 7.3 percent of total food and beverage
expenditures. Per capita consumption should increase in accordance with
population growth, but could be tempered by a decrease in consumer
purchasing power, which may induce consumers to substitute corn
tortillas for less expensive alternatives.

Starting in the September of 2006 the domestic livestock industry was
forced to deal with a surge in feed grain prices. For a period of time
in the fall of 2006 Mexican white corn prices were more competitive than
U.S. feedgrain prices. Thus, many Mexican feed grain users opted to
purchase grains domestically, rather than on the international market.
This effectively directed about 1.2 MMT of Mexican white corn to the
livestock industry that normally would have been in the commercial
tortilla supply chain. Such a volume of corn being taken out of the
tortilla supply chain partially contributed to a rapid increase in
tortilla prices, starting in January of 2007.

MY 2007/2008 domestic feed demand is forecast at 17.5 MMT. Though this
figure appears to be significantly higher than MY 2006/07, the actual
increase is rather minor once cracked corn imports are figured into the
feed grain consumption equation. The impact of higher corn prices is
starting to be felt by the Mexican livestock industry. Industry sources
have confirmed that growth in the swine, poultry, and beef sectors is
slowing down due to higher feed costs. Poultry producers also estimate
that consumption of feed grains will increase only 1 percent in MY 2007,
to 8.6 MMT. The poultry sector continues to be the major consumer of
feed corn and sorghum in Mexico.

#### 

### Trade

As previously stated, the MY 2007/2008 corn import estimate is
significantly higher than the MY 2006/2007 estimate. However, cracked
corn has historically not been reflected in the corn PSD table. Once
cracked corn is factored into the total import figure, corn imports in
2007/08 are forecast to increase to 10.2 MMT, only 2 percent over the
revised estimate for MY 2006/07 (in MY 2006/07 Mexico imported 8.0 MMT
of corn and 2.0 MMT of cracked corn). Because of timelier issuance of
import permits, and the full implementation of NAFTA in 2008, there will
no longer be a need to import cracked corn in MY 2007/2008. Thus, in MY
2007/08 importers will replace traditional cracked corn import volumes
with yellow corn.

Given the importance that weather plays in Mexican agricultural
production, wide fluctuations (from 1-2 MMT) can be expected in the
year-over-year import volumes. Import estimates for MY 2006/07 have been
increased, and the import estimate for MY 2005/06 has been revised
downward based on final official data from the Secretariat of Economy
(SE). The MY 2005/06 export estimate has also been revised downward
based on final official data from SE.

As a part an effort to stabilize tortilla prices, the Secretariat of
Economy (SE) has issued import permits for approximately 6.572 MMT of
corn through the first quarter of 2007 (see MX7004, MX7009 and MX7020).
This amount includes the 2007 NAFTA TRQ as well as unilateral TRQs for
corn announced on January 23 and March 12, 2007 (See MX7009 and MX7020).
Official sources have stated that additional imports will be issued
throughout the year, in accordance with demand. The following table
outlines the SE corn cupo allocations by industry:

+--------------------------------------------------+---------+--------+
| **Corn import Quota Allocations**                | **TRQ** | **%**  |
|                                                  |         |        |
| **(TRQ) for CY 2007**                            | **Alloc | **Of   |
|                                                  | ation** | T      |
|                                                  |         | otal** |
+--------------------------------------------------+---------+--------+
| ###### Under NAFTA                               |         |        |
+--------------------------------------------------+---------+--------+
|                                                  | 1000    |        |
|                                                  | Metric  |        |
|                                                  | Tons    |        |
+--------------------------------------------------+---------+--------+
| Corn Flour Millers (Human consumption)           | 333.3   | 9.24   |
+--------------------------------------------------+---------+--------+
| Snack food                                       | 45.0    | 1.25   |
+--------------------------------------------------+---------+--------+
| Breakfast Cereal (Human Consumption)             | 64.626  | 1.79   |
+--------------------------------------------------+---------+--------+
| Starch Industry                                  | 1,      | 36.46  |
|                                                  | 314.568 |        |
+--------------------------------------------------+---------+--------+
| Manufacturers Livestock (feeders, (growers &     | 1,      | 51.26  |
| feed millers)                                    | 848.058 |        |
+--------------------------------------------------+---------+--------+
| Total                                            | 3,      | 100.00 |
|                                                  | 605.524 |        |
+--------------------------------------------------+---------+--------+

*Note: The minimum Tariff Rate Quota for U.S. corn under NAFTA is 3.672
MMT for 2007. As mandated by the Lower House in the 2007 Budget Law, the
GOM is obligated to keep a minimum reserve of NAFTA TRQ for the possible
imports requirements of white corn in the second semester of 2007 (i.e.
66,476 MT).*

*Source: Secretariat of Economy as of February 23, 2007*.

+---------------------------------------------+------------+----------+
| **Corn import Quota Allocations**           | **TRQ**    | **%**    |
|                                             |            |          |
| **Under**                                   | **Al       | **Of     |
|                                             | location** | Total**  |
+---------------------------------------------+------------+----------+
| **The Extraordinary Unilateral Quota of**   | 1000       |          |
|                                             | Metric     |          |
| **February 23, 2007**                       | Tons       |          |
+---------------------------------------------+------------+----------+
| Corn Flour Millers (White Corn)             | 100.0      | 8.20     |
+---------------------------------------------+------------+----------+
| Governmental Company --DICONSA --           | 15.0       | 1.23     |
|                                             |            |          |
| (White corn)                                |            |          |
+---------------------------------------------+------------+----------+
| "Nixtamal" Miller Industry (white corn)     | 254.597    | 20.87    |
+---------------------------------------------+------------+----------+
| Manufacturers Livestock (feeders,           | 850.000    | 69.70    |
|                                             |            |          |
| (growers & feed millers) -- Yellow corn -   |            |          |
+---------------------------------------------+------------+----------+
| Total                                       | 1,219.597  | 100.00   |
+---------------------------------------------+------------+----------+

*Note: According to Secretariat of Economy (SE), the unilateral corn
tariff rate quota for 2007, in accordance with the country's WTO
commitments, is 1.3 MMT (See MX 7004 and MX7009).*

*Source: Secretariat of Economy as of February 23, 2007.*

+---------------------------------------------+------------------------+
| **Corn import Quota Allocations**           | **TRQ**                |
|                                             |                        |
| **Under**                                   | **Allocation**         |
+---------------------------------------------+------------------------+
| **The Extraordinary Unilateral Quota of**   | 1000 Metric Tons       |
|                                             |                        |
| **March 12, 2007**                          |                        |
+---------------------------------------------+------------------------+
| A.  Livestock sector and animal feed        | 1,000.00               |
|                                             |                        |
| > Manufacturers that have received          |                        |
| >                                           |                        |
| > Allocations of yellow of the 2007         |                        |
| >                                           |                        |
| > NAFTA TRQ                                 |                        |
+---------------------------------------------+------------------------+
| B.  Livestock sector and animal feed        | 600.00                 |
|                                             |                        |
| > Manufacturers that have not received      |                        |
| >                                           |                        |
| > Allocations of yellow of the 2007         |                        |
| >                                           |                        |
| > NAFTA TRQ                                 |                        |
+---------------------------------------------+------------------------+
| Total                                       | 1,600.0                |
+---------------------------------------------+------------------------+

*Note: According to Secretariat of Economy (SE), the additional
unilateral corn tariff rate quota for 2007, in accordance with the
country's WTO commitments, is 1.6 MMT (See MX7020).*

*Source: Secretariat of Economy as of March 12, 2007.*

In CY 2006 cracked corn imports continued to increase due to the strong
demand by the livestock sector, and the necessity of avoiding the NAFTA
corn tariff rate quota (TRQ) allocation process, reaching 3.2 MMT, or a
16.2 percent increase over the previous year. Again, cracked corn is not
reflected in the corn PSD table.

### Stocks

Mexico\'s ending stocks are forecast to increase very slightly to
approximately 2.272 MMT in MY 2007. Still, the country's stock-to-use
ratio is rather low compared to MY 2005/06. The estimated MY 2006/07
ending stocks were revised downward, due to higher-than-previously
estimated domestic consumption. Similarly, the ending stocks estimate
for MY 2005/2006 was revised downward as result of lower that originally
estimated imports.

### Policy

Since the implementation of NAFTA on January 1, 1994, the over-quota
bound tariff on corn has been reduced from 206.4 percent to 18.2
percent, and the TRQ has increased from 2.5 MT to 3.672 MMT for CY 2007.
At the same time, Mexico has converted its import licensing system to a
transitional tariff rate quota for the U.S. and Canada. The TRQ will
remain in effect for less than one year, and trade will be fully
liberalized on January 1, 2008. Likewise, the United States has
eliminated the 0.2 cents per kilogram tariff on corn imported from
Mexico.

Despite the agreed upon NAFTA bound tariffs for white and yellow corn,
the Mexican

Government has customarily issued additional import permits beyond the
amount required by the free trade agreement. Usually these additional
imports were subject to minor tariffs (roughly 1-2 percent on yellow
corn, and 2-3 percent on white), rather than the NAFTA bound tariffs.
However, in recent years the Mexican Lower House has decided that
over-quota imports of white corn would be subject to the import tariffs
specified by NAFTA (72.6 percent in 2004, 54.5 percent in 2005, 36.3 in
2006 and 19.2 percent in 2007). Although all correspond to NAFTA bound
tariffs, this decision is a marked departure from past practices, as
there is a significant difference between the current bound and the
previous applied tariffs. Nevertheless, this tariff is NAFTA consistent
and will apply to white corn, even in the case of a shortage (see
MX6019).

In the case of yellow corn, which comprises approximately 97 percent of
all U.S. corn exports to Mexico for the last few years, the Lower House
decided to leave the determination of the over quota amount to the
Ministries of Economy and Agriculture, two ministries which have
traditionally supported very low applied tariffs for corn, and who have
usually administered the import permit allocation process based on
national supply conditions and the marketing of domestic corn (see
MX5022). The United States will remain the main supplier of corn to
Mexico for the foreseeable future.

## SORGHUM {#sorghum-1}

### Production

Mexican sorghum production for MY 2007/08 (Oct-Sept) is forecast to
decrease by approximately 9.5 percent to 5.2 MMT because many producers
are opting to switch from sorghum to corn production. Despite the fact
that the prices of both grains are high, the recently announced GOM
measures to support corn competitiveness could persuade farmers to move
sorghum production land into corn (See MX7016). Moreover, poultry and
hog producers are anticipating a slowdown in demand for their products
as a result of price increases. Both sectors are the main consumers of
sorghum in Mexico.

Due to revised SAGARPA data, and preliminary information from private
sources, USDA/Mexico estimates for sorghum production and harvested area
for MY 2006/07 were adjusted downward. MY 2005/06 production and
harvested area estimates remain unchanged.

Harvested area of sorghum in MY 2007 is expected to decrease to 1.4
million hectares due to the switch from sorghum to corn. According to an
industry source, weather at planting will be the determinate factor for
farmers that are deciding between planting corn and sorghum. If the
rains are on time, farmers are more likely to plant corn. If the rains
are later, farmers are more likely to plant sorghum.

Thus far in the 2006 Spring/Summer crop cycle, water availability has
been adequate in most parts of Mexico. Approximately 25 percent of the
spring/summer crop is irrigated. According to the National Water
Commission, the reservoir levels in dams in the states of Guanajuato,
Jalisco and Michoacan, in west central Mexico, are approximately 23
percent higher than a year ago. These states produce the bulk of the
spring/summer crop cycle. Similarly, these states have registered
favorable weather conditions and timely rains across the main producing
areas, which may increase the sorghum yields beyond what is expected.

Sorghum production is spread throughout the country, with the largest
producing states being Guanajuato, Tamaulipas, Michoacan, Sinaloa, and
Jalisco, which account for approximately 75 percent of total sorghum
production. Roughly 24 percent of the fall/winter crop is irrigated,
while nearly 25 percent of the spring/summer crop is irrigated.

Official data, as of December 31, 2006, reveals that the overall yield
for the 2006 spring/summer crop is five percent higher than a year ago,
and crop quality is reportedly average to good. The graph below
illustrates the difference between the 2005 and 2006 spring/summer crop
yields in the main producing states.

![](media/image3.wmf)

SAGARPA data on sorghum production costs is limited to only a few
states. In Tamaulipas, for example, costs vary between 4,381 -- 8,235
pesos/ha (U.S. \$ 396 - \$740/ha), depending on whether the land is
irrigated.

A flat‑rate payment of 963 pesos/ha (roughly U.S. \$86.52/ha) was
granted to sorghum farmers for the 2006 spring/summer crop cycle. This
payment plan will be repeated for the 2006/07-fall/winter crop under
PROCAMPO, the Mexican domestic agriculture support program. The GOM
policy is that farmers with production areas of between one and five
hectares will receive 1,160 pesos per hectare (approximately U.S.
\$104.22/ha). The GOM has yet to announce the payment amount for the
2007 spring/summer crop cycle.

Because of transportation and quality issues feed millers are somewhat
reluctant to purchase the Tamaulipas fall/winter crop. In order to
encourage the purchasing of Tamaulipas sorghum, the GOM has promoted
forward contract purchases between farmers and feed mill buyers.
According to official sources, SAGARPA officials brokered agreements for
1.3 MMT of sorghum between Tamaulipas growers and private buyers for the
2006/07-fall/winter-crop cycle. The forward contracts program may
continue in the next crop cycle, but is dependent on the federal budget,
which is reauthorized each year.

### Consumption

The poultry industry is the major consumer of sorghum in Mexico. The
consumption estimate for MY 2006/2007 was revised downward based on more
current industry information, which reflects a substitution of sorghum
for corn. Traders and buyers indicate that the GOM's actions to issue
additional corn import permits could encourage livestock producers to
consume even more corn. The livestock sector, mainly poultry and hog
growers, consumes corn primarily in the form of mixtures and feed
concentrates.

In MY 2007/08 sorghum consumption is expected to increase only
moderately to 8.3 MMT as a result of the overall sluggish demand for
feed grains. Sorghum consumption growth by the poultry industry will be
dampened due to the expected price increase of poultry meat and eggs.
Private industry sources have reported that poultry, beef and pork
producers have been reluctant to pass on the effects of the recent surge
in feed grain prices to the industry, traders, or the final consumer.
However, the forecast is that they cannot maintain their current pricing
structure beyond March or April. Thus, a price increase in meat products
could be in place by May of 2007. Moreover, for MY 2007, the poultry
sector not only faces increased costs of production, but consumers have
less purchasing power due to an expected slowdown in Mexican economy.

### Trade 

Imports for MY 2007/08 are forecast to increase by 900,000 MT to 3.0 MMT
due to lower domestic production and the need to restore stocks. The MY
2006/07 import estimate has been decreased to 2.1 MMT based on
preliminary data from official and private sources. This decrease is the
result of the substitution of sorghum with yellow corn imports, due to
the authorization of additional corn cupos (see Corn Trade Section). The
MY 2005/06-import estimate remains unchanged.

### Stocks

The estimate of MY 2006/07 ending stocks has been decreased to about
400,000 MT because of lower than expected domestic production, and lower
than previously estimated imports. Similarly, ending stocks are forecast
to decrease by nearly 25 percent because of lower domestic production
for MY 2007/08. Private feed millers continue to keep approximately six
weeks supply of feed in stock at any given time.

## BEANS, DRY EDIBLE 

### Production 

MY 2007/08 Mexican dry edible bean production is forecast at 1.23 MMT,
2.5 percent lower than last year's revised estimate. Likewise, the
forecast for area harvested is approximately 40,000 hectares lower than
the previous year. The reduction in expected planted area is primarily
attributed to a shift from dry bean production to corn production, due
to higher prices. An additional factor may be the continuation of a GOM
conversion program, which works to move less productive hectares into
forage crops (see Policy Section). The production estimates, as well as
the harvested area estimates, for MY 2005/2006 and 2006/2007 have been
revised upward. These changes reflect the most recent SAGARPA figures,
which include an update for the 2006/07-fall/winter-crop cycle and a
preliminary estimate for the 2006 spring/summer crop cycle. FAS/Mexico
continues to use official Mexican government statistics for historical
purposes.

Industry and official sources estimate that the 2006 spring/summer crop
cycle could produce approximately 1.0 MMT of edible dry beans. In the
2005 spring/summer crop, Mexico harvested 556,000 MT. This increase was
possible because of ample rainfall. Growers traditionally plant the
spring/summer harvest from March to August, and harvest it from
September to February. In Zacatecas, the main producing state, official
reports indicated that the planted area received ample rains in July and
the crop had a good start. The crop was planted on schedule between June
and July. Some areas, however, suffered from minor pest problems and
poor harvesting conditions, which caused some reductions in quality.
Total planted area in Zacatecas was approximately 602,000 hectares. Only
9,300 hectares were reported as damaged, which represents only 4 percent
of the area that was damaged last year. Zacatecas production is expected
to reach approximately 424,000 MT, approximately 142 percent more than
the year before, which had registered extremely dry weather conditions.
According to official sources, this production was broken down into
approximately 60 percent blacks, 30 percent colored beans ("flor de
mayo" and "flor de junio") and the rest were pinto varieties. Bean
quality was reported as less than average due the excessive rain at
harvest.

Production in Durango, the second most important dry bean producing
state, also increased sharply (approximately 200 percent), due to good
weather and timely rainfall during the growing season. Most of the 2006
spring/summer crop was planted in late July and early August. Yields
were also said to be well above normal for this crop, averaging 0.810
MT/ha. compared to 0.365 MT/ha. one year earlier. Production is forecast
at 199,400 MT, with the majority of the crop being pinto varieties.

Growers were pleased with the 2006 spring/summer crop cycle in
Chihuahua, the third most important dry bean producing state. Crop
conditions during the growing season were much better than last year,
and contributed to higher overall yields. Over 81,000 MT of production
are expected to yield from the 95,000 planted hectares, with yields
averaging roughly 0.850 MT/ha. According to industry sources, Chihuahua
is increasingly using more modern farming practices, which has resulted
in more effective weed control and higher bean quality. Chihuahua
appears to be the bright spot for Mexico's bean crop, as it realizes
higher average yields and consistently high quality crops. Chihuahua
production is approximately 98 percent pinto varieties. The irrigated
production area (approximately 20,000 ha.) is dominated by sophisticated
growers who use hybrid seed, automated irrigation, and advanced
agronomic practices.

For the 2006/07-fall/winter-crop cycle, Nayarit reports a planted bean
surface of 57,391 ha., 10 percent lower than a year ago, reflecting the
relatively sluggish demand for beans in 2006. The expected production
this year is approximately 75,000 MT. Of this production, 70 percent are
Jamapa Black. The rest of the production consists of colored beans, such
as the Azufrados, Mayocobas, and other clear and pink varieties. SAGARPA
officials stated that harvesting began in the first week of February and
is expected to conclude in March. Despite rumors of damage to the bean
crop due to bad weather at the beginning of January, damage was done to
no more than 1,500 hectares.

Sinaloa is the main producing state of the fall/winter crop cycle.
SAGARPA officials reported that 75,118 hectares were planted in this
state, of which 63,1885 hectares are irrigated. Production is expected
to reach 113,540 MT. The estimated yield is 1.845 MT/ha, which is 27
percent greater than the same crop cycle a year ago, despite the fact
that growers have experienced some weather problems because of low
temperatures on January 23 and 24. Similar to Nayarit, harvesting began
in February and is expected to end in March.

Weather continues to be the predominant production factor, given that
over 80 percent of Mexico's bean production areas are non-irrigated. The
overall yield for the MY 2007/08 is forecast at about 0.750 MT/ha, which
is similar to the average expected in MY 2006/07. The dry beans
harvested during the 2006 spring/summer crop cycle are reportedly of
less than average quality due to the previously mentioned excessive rain
at harvest. For the 2006/07-fall winter crop cycle, however, the quality
is reportedly relatively high.

According to SAGARPA's new methodology to estimate dry bean inputs cost,
costs vary widely depending on location and whether the production area
is irrigated. The following table is an outline of the available
information on total input costs for dry beans production in different
states:

+-----------------+--------------------------+------------------------+
| **Dry Beans     |                          |                        |
| Production Cost |                          |                        |
| Budget for      |                          |                        |
| Several         |                          |                        |
| States**        |                          |                        |
|                 |                          |                        |
| **& Crop        |                          |                        |
| Cycles**        |                          |                        |
|                 |                          |                        |
| **(Pesos per    |                          |                        |
| Hectare)**      |                          |                        |
+-----------------+--------------------------+------------------------+
| **State**       | **2005**                 | **2005/06**            |
|                 |                          |                        |
|                 | **Spring/Summer**        | **Fall/Winter**        |
+-----------------+--------------------------+------------------------+
| Zacatecas       | 2,557.00                 | N/A                    |
+-----------------+--------------------------+------------------------+
| Chihuahua       | 2,867.00                 | N/A                    |
+-----------------+--------------------------+------------------------+
| Nayarit\*       | N/A                      | 8,443.00               |
+-----------------+--------------------------+------------------------+
| Sinaloa\*\*     | N/A                      | 14,949.00              |
+-----------------+--------------------------+------------------------+

*\*Irrigated Area using gravity irrigation system*

*\*\* Irrigated are using pumping irrigation system*

*Exchange Rate as of February 22, 2007: U.S. \$1.00 = 11.13 Pesos*

*Source: SIAP/SAGARPA*

### Production Policy

A flat‑rate payment of 963 pesos/ha (roughly U.S. \$86.52/ha) was given
to bean farmers for the 2006 spring/summer crop cycle. This payment plan
will be repeated for the 2006/07-fall/winter crop under PROCAMPO, the
Mexican domestic agriculture support program. The GOM policy is that
farmers with production areas of between one and five hectares will
receive 1,160 pesos per hectare (approximately U.S. \$104.22/ha). The
government has yet to announce the payment amount for the 2007
spring/summer crop cycle.

The GOM has continued with the program to support dry bean farm-gate
prices established in CY 2003 in Zacatecas and Durango (see MX6019).
This year the program paid 6.0 pesos per/kilo. The dry beans are
delivered to private warehouses, and the established price is paid (i.e.
6.0 pesos per kilo) in full to the producer. Private sources have
indicated that at the beginning of the harvest private traders were
buying beans at prices from 3.50 to 4.30 pesos per kilo, before the
private collection warehouses started to operate. Many growers opted to
sell early in the harvest season at lower prices for cash flow reasons.
However, as soon as the collection sites were open (33 sites in the
state of Zacatecas alone), most growers opted to sell for the higher
price of 6.0 pesos per kilo.

Additionally, the GOM, through its Bean Reorganization Program (see
MX5022 & MX6019), has continued to support bean farmers by offering
certified seed, subsidies for the adoption of improved
machinery/technology (i.e., combines and packing plants), reduced diesel
prices, and PROCAMPO supports. Currently the GOM has been focusing on
black beans in Zacatecas through a program of distributing certified
T-39 black bean seeds imported from Michigan. This program has been
relatively successful, as approximately 900 hectares of irrigated land
were planted with certified T-39 black bean seed this past year. The
crop produced approximately 2,130 MT, with an average yield of 2.5
MT/ha. The GOM has also purchased 100 combines from Brazil specifically
designed to harvest dry beans. Those combines are resold to producers,
or groups of producers, under favorable financing plans.

The GOM continues to work to move marginal bean areas into other
products such as grains and grasses with the conversion program. This
program has realized some success in Zacatecas (see MX6019). Recently
the GOM announced that for CY 2007 it would add another 150,000 hectares
into this program (See MX7016)

Several years ago the GOM financed bean-cleaning plants in the Zacatecas
towns of Calera and Sombrerete (see MX5022 and MX6019). Despite
management and financing problems in the beginning, both plants are
currently operating, and have expanded their scope of activities to
include warehousing services. For the spring/summer crop cycle the goal
is for these plants to process 30,000 MT of dry beans. Similarly, in the
Durango city of Guadalupe Victoria another cleaning facility has been
constructed under a government-financing scheme. The objective of this
plant is to improve the commercial bean value to local farmers.
Reportedly, the plant is in the last stages of construction. Private
sources indicated that this plant is modern, sophisticated, and
expensive.

### Consumption

The forecast for dry bean consumption in MY 2007/08 is 1.380 MMT, an
increase of approximately 1.5 percent over the revised estimate of last
year. Dry beans continue to be a basic staple food in Mexico, despite
the fact that Mexico has experienced a decline in consumption over the
last few years. An emerging middle class, where both parents work
outside the home, is forcing a change in the food consumption habits of
many Mexicans. Because of the amount of time required to prepare beans,
bean consumption has declined as the opportunity cost of time has risen,
along with the purchasing power of many Mexican families. However, in MY
2007/2008 dry bean consumption should increase slightly as low and
middle-income consumers start to substitute the consumption of meat and
poultry for less expensive dry beans as a source protein in their diets.
Per capita dry bean consumption in Mexico continues to be one of the
highest in the world, at approximately 12.7/kg per year. MY 2005/06 and
MY2006/07 bean consumption estimates were revised downward, reflecting
the most recent industry information.

### Trade

### 

MY 2007/08 imports are forecast to increase to 135,000 MT, assuming a
decline in domestic production. Import estimates were adjusted downward
for MY 2006/07 due to higher-than-previously estimated domestic
production. Similarly, import estimates for MY 2005/06 have been revised
downward based on end-of the year data from SE. Export estimates for MY
2005/06 and MY 2006/07 have been revised upward, based on SE's official
data and trade sources.

### Stocks

Carryovers stocks are expected to decrease by approximately 44 percent
because domestic production is forecast to decline in MY 2007/08.
Estimated stocks for MY 2005/06 and MY 2006/07 have been revised upward
and downward, respectively, reflecting the most recent official
information. For MY 2007/08, ending stocks are forecast to decrease to
45,000 MT.

### Policy

On January 1, 1994, in accordance with the NAFTA, Mexico converted its
import-licensing regime for the United States and Canada to a
transitional TRQ. The U.S. TRQ grew at a 3‑percent annual rate over the
15‑year transition period, which started in 1994 and will end in 2008.
In CY 2007, the United States is able to export 73,427 MT duty-free to
Mexico. The over‑quota tariff for CY 2007 is 11.8 percent. Since 1994
the over-quota tariff for dry beans has gone from 127.8 percent to 11.8
percent. The remainder of the tariff will be zero in 2008.

## WHEAT 

### Production 

Total Mexican wheat production for MY 2007/08 is forecast at 3.26 MMT,
0.6 percent greater than the previous year's revised estimate. This
increase is due to a slight expansion in area planted in Mexico's bread
wheat producing regions, and sufficient water availability for
irrigation in Mexico's durum wheat producing region in the northwest of
the country. The bread wheat producing states of the central plateau in
Mexico also report sufficient water availability and the application of
additional inputs to improve yields, thus improving production
expectations for MY 2007/08. Mexican wheat production for MY 2006/07 is
also revised upward from our previous estimate due to sufficient water
supply and better inputs. Production for MY 2005/06 reflects official
data.

The following table shows year-over production costs for the main wheat
producing states.

+-------------------+-------------------------+------------------------+
| **Wheat           |                         |                        |
| Production Cost   |                         |                        |
| Budget for        |                         |                        |
| Several States &  |                         |                        |
| Crop Cycles**     |                         |                        |
|                   |                         |                        |
| **(Pesos per      |                         |                        |
| Hectare)**        |                         |                        |
+-------------------+-------------------------+------------------------+
| State             | 2005 Spring/Summer      | 2005/06 Fall/Winter    |
+-------------------+-------------------------+------------------------+
| Sonora\*          | N/A                     | 9,538.15               |
+-------------------+-------------------------+------------------------+
| Baja California\* | N/A                     | 9,785.60               |
+-------------------+-------------------------+------------------------+
| Tlaxcala          | 6,839.50                | N/A                    |
+-------------------+-------------------------+------------------------+

\* Irrigated Area

*Data for other wheat producing states not yet available.*

*Exchange Rate as of February 22, 2007: U.S. \$1.00 = 11.13 Pesos*

*Source: SIAP/SAGARPA*

Overall harvested area for wheat in MY 2007/08 is forecast to increase
by 0.09 percent, to around 575,000 hectares. This estimate is slightly
higher than our revised estimate for MY 2006/07. The increase reflects
the tendency of many wheat farmers in the state of Sonora to return to
growing wheat after having planted other crops that required less water
during the drought years. Harvested area for MY 2006/07 is revised
upward from our previous estimate as farmers return to planting wheat
now that the drought years have subsided. Harvested area for MY 2005/06
reflects official data.

### Consumption 

For MY 2007/08, post forecasts a slight increase over the previous
year's revised estimate due to continued growth in preferences among
consumers for wheat-baked goods. Much for the same reason as above, the
MY 2006/07 estimate has been revised upward by 2.05 percent. Consumption
for MY 2005/06 reflects official data.

### 

### Trade

Imports for MY 2007/08 are forecast at 3.60 MMT, slightly higher than
the previous year's revised estimate of 3.55 MMT. This increase is
largely driven by shifts in tastes and preferences towards bread
products in Mexico. Despite increased imports, greater demand has also
fueled increased production of bread wheat in central Mexico. Imports
for MY 2006/07 are revised downward by 12.15 percent from our previous
estimate reflecting more current information from industry and
government sources. Imports for MY 2005/06 reflect official data.
Mexican wheat exports for MY 2007/08 are forecast at 550,000 MT, and are
mainly durum wheat from the northwestern states of Mexico. MY 2006/07
exports are revised upward reflecting current statistical data. Exports
for MY 2005/2006 reflect official data. As customary, Mexico will
continue to import wheat from the United States and Canada. Naturally,
price will play a large role in deciding the source of imports.

### Stocks

My 2007/08 ending stocks are forecast at 400,000 MT. Because of
irregular growth and quality in the production of bread quality wheat,
the Mexican industry needs to build and maintain adequate year-to-year
stocks. Thus, ending stocks in MY 2006/07 have been revised upward to
340,000 MT. MY 2005/06 ending stocks reflect official data.

### Marketing 

U.S. wheat prices must stay competitive in order for U.S. producers to
maintain their current market share. Furthermore, wheat consumption in
Mexico should be stimulated by market development activities that focus
on consumer use of wheat products (e.g., bread, cookies, etc.). Also,
close contact should be maintained with industry and government
personnel in charge of regulatory functions so that grades, standards,
and phytosanitary regulations do not impede the wheat trade between the
U.S. and Mexico.

## RICE

### Production

Rice production for MY 2007/08 is forecast to increase slightly by 1.1
percent from the previous year's estimate of 181,000 MT (milled basis),
as some of the idle rice lands were brought back into production with
new promises of government support. Due to untimely implementation of
government support programs, production for MY 2006/07 remains unchanged
from the previous estimate. Rice output for MY 2005/06 reflects official
data.

Government sponsored programs are in effect which offer much needed
financing to small and medium-sized producers. However, due to high
interest rates, it is unlikely that the programs will have any
significant impact on production in the short-term. Therefore, at best,
rice production will remain stable or will very gradually increase, in
the next few years.

For MY 2007/08, area harvested is forecast to increase by 3.8 percent
from the previous year's estimate due to expectations of timely
government support to Mexican producers. Harvested area for MY 2006/07
remains unchanged at 52,000 hectares. MY 2005/06 harvested area reflects
official data.

Given that most rice production in the major growing regions is
irrigated, average yields are expected to remain at about 4.7 metric
tons per hectare, with yields in Veracruz slightly higher. However,
given the increase in input costs, many producers may not have the
financial resources to use the same amount of inputs. Thus, in certain
areas yields may be lower than in years past.

+-------------------+-------------------------+------------------------+
| **Rice Production |                         |                        |
| Cost Budget for   |                         |                        |
| Several States &  |                         |                        |
| Crop Cycles**     |                         |                        |
|                   |                         |                        |
| **(Pesos per      |                         |                        |
| Hectare)**        |                         |                        |
+-------------------+-------------------------+------------------------+
| State             | 2005 Spring/Summer      | 2005/06 Fall/Winter    |
+-------------------+-------------------------+------------------------+
| Veracruz          | 18,553.25               | N/A                    |
+-------------------+-------------------------+------------------------+
| Morelos           | 29,510.00               | N/A                    |
+-------------------+-------------------------+------------------------+

*Data for other rice producing states not yet available.*

*Exchange Rate as of February 22, 2007: U.S. \$1.00 = 11.13 Pesos*

*Source: SIAP/SAGARPA*

### Consumption

MY 2007/08 rice consumption is forecast at 750,000 MT, unchanged from
the previous year's revised estimate. This steady consumption pattern is
due to competitive prices, and the continuing marketing efforts by the
U.S. Rice Federation and the U.S. Rice Producers Association. Rice is a
staple food for the majority of the lower income population in Mexico.
Nonetheless, MY 2006/07 consumption estimates have been revised downward
from our previous estimates, reflecting more accurate and current data
from the industry. Consumption for MY 2005/06 reflects official data.

### Trade

Imports in MY 2007/08 are forecast to increase by roughly six percent
because of insufficient domestic production relative to consumer demand.
MY 2006/07 rice imports remain unchanged from the previous estimate.
Imports for MY 2005/06 reflect official data.

### 

### Stocks 

Ending stocks are forecast to increase slightly in MY 2007/08 to 149,000
MT. Rice mills generally keep between one and two months supply of
imported rice in stock. However, due to insufficient domestic
production, mills will increasingly look to imports for supplies,
especially during the traditionally short supply months of April, May,
June and July, the months in-between Mexico's two rice crops. Ending
stocks for MY 2006/07 are revised downward to 146,000 MT due to steady
consumption. Ending stocks for MY 2005/06 reflect official data.

# 

### Policy 

On September 11, 2006 the Secretariat of Economy (SE) published the
final resolution of Mexico's antidumping investigation on U.S.
long-grain white rice. Mexico undertook the investigation after the
December 2005 WTO ruling that Mexico had not properly conducted the
previous investigation that had led to the imposition of antidumping
duties. In this final resolution, SE revoked all previous duties,
concluding that the imports during the referenced period did not
constitute price discrimination, and thus did not cause damage to the
domestic rice sector (See MX6076).

### 

### Marketing 

Marketing activities should continue to center on branded promotions and
other avenues for creating niche markets for U.S. specialty and quality
rice. In addition, given the overall low level of rice consumption in
Mexico, it may also be strategically beneficial to provide nutritional
information on rice to encourage more healthy diets and increased rice
consumption in lower income areas of the country.