Does Europe need Ukrainian corn?

2015-02-09 16:56:59

When preparing for spring planting, each grain grower gets to choose which spring crop to prefer. In the present difficult economic situation, the banal lack of money may appear the decisive factor, and farmers will be forced to sow the least costly crop. Nevertheless, according to surveys conducted by UkrAgroConsult, grain growers remain adherent to corn, though this crop is expensive to produce. 

Despite rapid growth of input prices, farm heads believe that the costs will pay off in spades owing to high corn yields. According to preliminary forecasts of UkrAgroConsult, this confidence may develop into a new abundant crop. Even taking into account a probable 5-7% acreage reduction from last year and an absolutely objective yield fall, the total corn crop may approximate 24 MMT in 2015.

However, the abundant crop by no means implies that farmers will get high revenues. On the contrary, profitability usually sinks in high-yield years due to falling prices. In this connection, it is important to understand who will actually pay for this grain.

A well-known fact is that Ukraine has annually exported some 70% of its corn harvest in recent years. Corn exports reached a record 19.9 MMT in 2013/14, including 49% shipped to Europe. The situation changed abruptly this season. European countries harvested own abundant crops once again and sharply cut purchases from abroad. In particular, October-December imports of Ukrainian corn were down 50% from last year. A rather unexpected result in view of the preferences allegedly granted by Europe to Ukraine, isn’t it?

Let’s try to find out what actually happened. As a reminder, in April 2014 the European Union granted Ukraine a 400 KMT duty-free corn import quota under autonomous trade preferences. However, prior to the introduction of the preferences, Ukrainian corn supplies to the EU were 24 times (!) as high. The point is that Europe took measures to protect own producers. Theoretically, the corn import duty in the EU equals EUR 94, but corn was imported to the EU free of duty before the 2014 CBOT price fall below a limit level ($4/bushel). Once global prices dropped, the European Union set an import duty to protect its domestic producers. Depending on international quotations, this duty reached EUR 11/MT. Since then, Ukraine has succeeded to sell just 400 KMT of duty-free corn in 2014 and 400 KMT in 2015.

At the same time, one would by no means say that the EU is not interested in Ukrainian grain. Its interest is eloquently proven by the very fact that the quota for the current calendar year was fully (!) used up on the very first day of its distribution (January 2). The Ukrainian agricultural authority is making attempts to get the quotas increased, but the need to protect own farmers is naturally the top priority for the European leadership.

Consequently, Europe is a purely situational destination for Ukrainian corn. In the past decade, crop failures in Europe were rarer than production records in Ukraine. The Asian and African markets look more promising, but the issue of competition arises here.

In conclusion, we would like to note that Ukraine can undoubtedly produce even 80 MMT of grain, maybe even 100 MMT. But is the world ready to pay for it?