Prospects for US manufacturers of corn sweeteners, such as HFCS, in the key Mexican market may not be quite as dire as some observers believe, despite threats from a switch to sugar, and from a proposed levy on sweet drinks.
The US Department of Agriculture's Mexico City bureau acknowledged that "due to lower sugar prices", Mexico's soft drinks industry, a huge user of sweeteners, was "increasing sugar consumption" – a factor which bodes ill for rival HFCS (high fructose corn syrup).
Indeed, the bureau, in a report issued shortly before the department was shut down thanks to the US budget standoff, lifted by 200,000 tonnes to 4.72m tonnes its forecast for food use of sugar in the newly started 2013-14 season.
"The sugar industry believes that [Mexican] bottlers increased consumption in 2012-13, and the trend is expected to be similar for 2013-14," the briefing said.
Steady as she goes
However, this expansion will not eat too much into consumption of HFCS, as produced by corn processors such as Archers Daniels Midland, Cargill and Tate & Lyle, for which the Mexican market is a key export destination for US production.
The bureau said that it did not expect demand "to increase over 1.70m tonnes", implying that while growth would not see the same 9.7% growth as last season, it will remain at around the same level.
Imports of HFCS from the big US producers "are expected to be similar" to the 1.24m tonnes bought in last season, if down 3.0% on 2011-12 levels.
Mexico's own production of HFCS - which requires some 1.6m-1.8m tonnes of corn a year, of which 80-90% is imported - is expected to hold steady at about 470,000 tonnes.
Credit Suisse warning
The briefing paints a more benign outlook for US corn processors than that portrayed last month by Credit Suisse, which warned of a double whammy - both from lower sugar prices and from the dent to consumption of fizzy drinks, a key consumer of sweeteners, from a proposed Mexican tax on sodas.
The imminent annual round of price talks between major North American HFCS producers and consumers "look to be set against a very tough backdrop", the bank said, warning of the potential for lower demand to cut capacity utilisation at producers' plants to below 80%."The last time capacity utilisation fell below 80% industry profitability collapsed," the bank said.