Colombia’s Appetite for US Corn Remains Strong29 August 2014
COLOMBIA - US corn exports to Colombia have dominated the market against Southern Common Market (MERCOSUR) competitors.
US corn exports slightly exceeded 2.4 million metric tons (MMT) through June 2014, closing the 2.3 MMT quota for the calendar year under the US-Colombia Trade Promotion Agreement (CTPA). US corn is on track to capture approximately 95 per cent of the 3.6 MMT corn import market in Colombia, notwithstanding out-of-quota duties at 18.75 per cent. Progressively higher duties on MERCOSUR corn under the Price Band System (PBS) of the Andean Community of Nations (CAN) continue to work in favor of sourcing US corn.
Price conscious Colombian grain importers have enthusiastically taken note of low corn prices, helping US corn exports to swiftly recover market share against MERCOSUR competitors, primarily Argentina and Brazil. The United States has gradually lost market share since 2009 from MERCOSUR competitors because of comparable freight rates, high US corn prices and trade preferences motivating importers to source MERCOSUR corn. In 2008, US corn exports held 80 per cent of the Colombian import market share, declining significantly to 13 per cent in 2012. In 2013, lower prices initiated the market recovery, up to 18 per cent by the end of the calendar year, continuing into 2014. The illustrations below highlight the complete domination of US corn market share in Colombia (January to May), from 2 to 99 per cent, over the same time period a year before.
Source: Global Trade Atlas (GTA)
The graph below illustrates Colombia’s corn importing trends (in MMT) since 2009 from the specific the country of origin, highlighting the the dramatic shift towards sourcing US corn in 2014.
As of 30 June 2014, US corn exports slightly exceeded 2.4 MMT, filling the 2.3 MMT quota for the 2014 calendar year. The table below illustrates monthly deliveries from January 2009 to the present, including the US corn buying frenzy that began in October 2013. The decline in deliveries in November 2013 and January 2014 reflect the delivery delays from inclement weather in the United States and the logistical challenges from the soybean buying surge from China. The sharp decline in June reflects the closing of the 2.3 MMT quota; however, yet to be published data from July will likely reverse that trend.
Lower prices for US corn almost completely mitigate any competitive pricing advantages Argentina and Brazil enjoyed in previous years under the CAN PBS. Colombia applies a PBS mechanism for all trading partners for major commodities, except where trade agreements establish different trading conditions, such as the CTPA, which applies an initial zero duty tariff-rate-quota mechanism instead. The Government of Colombia maintains the CAN price band for all trading partners and in the case of MERCOSUR offers duty discounts at 70 per cent of the base duty plus the variable duty. The PBS applies duties off of a 10 per cent base duty when international corn prices are lower than the floor price and conversely reduces the base duty when international prices are higher than the ceiling price. This price band mechanism operates as a protective pricing policy when the international corn prices are lower than the PBS floor price, which increases the import duty. In recent years, with high international commodity prices, the price band mechanism has resulted in a converse scenario with near zero duties for imports from trading partners where the PBS applies, such as MERCOSUR. Since the fall of 2013, falling corn prices have benefited US corn at the expense of MERCOSUR, whose duties have risen significantly from 0-30 per cent – even with the duty discount, while US corn remains at zero duty within quota and 18.75 per cent out-of-quota.
The CAN base duty is 15 per cent for corn with a variable duty that changes every two weeks, tracking a reference price based on a 60 day CBOT average. The variable duty increases the base duty when the CBOT average is lower than a set floor price fixed at US$269 per ton. Conversely, the variable duty will reduce the base duty when the reference price is above the ceiling price, currently fixed at US$328 per ton.
For the period of 16-31 August 2014, the CAN reference price (cost, insurance and freight, or CIF, landed at Colombian ports) for corn is US$218 per ton, which ostensibly falls below the US$269 per ton PBS floor price. As a result, the duty on corn imports from MERCOSUR is currently 30 per cent. The graph below illustrates the reference price trend and corresponding duties to MERCOSUR corn:
Colombian grain importers continue to source US corn despite the out-of-quota duty given higher duties to MERCOSUR. This has significant implications for the fall 2014 US corn harvest. If prices continue to trend downward, and with MERCOSUR duties climbing, US corn will likely continue to dominate the Colombian market as the fall 2014 harvest deliveries begin and into 2015.
TheCropSite News Desk