US corn price collapse brings EU import levy one step closer
Collapsing US corn prices have raised the possibility that the EU will impose import duties on corn in a protective measure designed to prop up domestic prices for the bloc’s farmers.
The move could prompt a burst of interest for Black Sea corn, both from EU and Ukraine origins, although Ukraine’s contribution could be limited as its eligible exports are controlled by a tariff-rate quota (TRQ).
The EU uses a formula based on US Gulf FOB corn prices and delivered prices into Rotterdam to determine when to impose a tariff, with the measure last being used in 2017.
US corn prices have plunged as the country’s ethanol and feed sector has been hit hard by Covid-19 lockdowns.
The price for corn offered on an FOB US Gulf basis has slumped to around $152/mt for May loading this week, moving the possibility of implementing the levy closer, as the EU import legislation needs 10 consecutive days of prices below €157/mt before it is triggered.
Corn from worldwide origins can be imported into the bloc without any taxes being imposed, unless the ten-day average CFR Rotterdam price for corn loaded from US Gulf falls below the €157/mt level by at least €5/mt.
Based on data from the European Commission for April 15, the CFR price already stands at €151/mt.
“It looks like (the levy will be imposed), and I do not see any fundamentals to remove it anytime soon either," a Europe-based trader told Agricensus, meaning there are few factors that can support US corn prices.
The move could alter dynamics of the Black Sea corn complex, promoting further imports of corn from Ukraine under the EU allocated annual TRQ, which is reset at the start of the financial year.
But, with the TRQ currently set to 1.225 million mt for import in 2020, the quota was left unchanged versus 2019’s figure.
As such, from April 8 to the current date, 75% of the total has already been awarded, leaving only around 214,000 mt of the quota for the rest of the year.
“Demand (from the EU) remains unchanged, it is just that importers are afraid of the potential of the EU import levy to kick in,” a broker said regarding the new volumes awarded over the last few weeks.
“It will mean that EU corn ex FOB CVB (Constanza, Varna, Burgas) will be higher than FOB Ukraine, so there will be a tendency for EU corn to stay within the EU and not compete with third-country destinations,” a second broker said.
The EU has been a major destination for Ukraine’s corn in recent years, and the potential loss of the bloc as a customer could cause ending stocks to rise, even if the country is able to retake market share from EU Black Sea corn exporters like Bulgaria and Romania.
The EU and UK has imported 16.3 million mt of corn since the start of the 2019/20 marketing year on July 1, including 9.7 million mt from Ukraine, 4.8 million mt from Brazil, 973,763 mt from Serbia, 253,218 mt from Moldova and 234,844 mt from Argentina.