Shrinking corn crop in EU countries may drive higher Ukrainian exports

Corn production in the European Union in the marketing year 2022-23 (July-June) is seen falling sharply due to prolonged drought in parts of the bloc, which is likely to open export opportunities for neighboring Ukraine.

Ukraine, for the past two years has been the largest corn exporter to the EU. This year, EU's corn imports have already reached three-year high levels and are likely to remain elevated for the rest of the year as domestic production is seen falling, sources said.

The US Department of Agriculture lowered EU corn production estimate in August to 60 million mt for MY 2022-23, down 15% on the year and 12% lower from the previous estimates. It is also below the five-year average for EU's corn production.

"The 8 million mt cut from is an interim step in our opinion, but it does acknowledge the severity of the situation in the EU," Platts Analytics said in a recent report. Platts Analytics sees EU corn production in MY 2022-23 to be in the range of 55 million-57 million mt.

According to USDA, the EU's corn imports are estimated at 19 million mt, up 3 million mt on the year as well as the previous estimate.

Drought scorching harvest

Almost half of Europe is suffering from a historic drought, according to local weather agencies.

"Water and heat stress are driving crop yields down from a previously already negative outlook for cereals and other crops. France, Romania, Spain, Portugal and Italy will need to deal with this reduced crop yield," European Commission's Joint Research Center said in a recent report.

Romania and France are the largest corn suppliers in the EU.

"In agriculture, the effects of the hot and dry conditions have been severely felt", said European commission's weather agency Copernicus. In France, 90 of the country's 96 departments had been placed on drought alert, with 87 departments placing restrictions on irrigation for agriculture, it added.

"These restrictions, and the hot dry conditions that caused them, had inevitable consequences in terms of agricultural output in France and elsewhere," Copernicus added.

Ukraine to the rescue?

The forecast for a decrease in the EU corn harvest in MY 2022-23 may lead to an increase in imports of corn, an analyst with Ukrainian Agribusiness Club, Svitlana Lytvyn said.

"This situation may be an additional opportunity for Ukrainian farmers," she added.

Ukraine, even though struggling with its exports ever since the Russian invasion, is well positioned to provide the EU with its additional corn requirements.

Due to the blocking of seaports by Russian troops, EU countries have been almost the only logistically available buyers. Now there is an attempt to re-establish export by sea through three ports in the Odessa region, and we are waiting for results, how much this corridor will fully work, said Lytvyn.

"In any case, there is enough corn in Ukraine to provide both traditional markets for Ukraine -- China, Egypt, the Netherlands -- and additional demand from the EU countries," she added.

Ukraine currently has last year's harvest of about 17 million mt, and soon there will be a new crop of estimated 26 million mt, Lytvyn added.

In August, USDA also raised its estimates for Ukraine corn production and export. For MY 2022-23, USDA sees Ukraine corn production at 30 million mt, up 5 million mt from July estimate, while Ukraine's corn export is now seen at 12.5 million mt from 9 million mt estimated earlier.

As of Aug. 14, the EU has imported 3.59 million mt of corn in MY 2022-23, almost double than 1.78 million mt corn imported during the same period last year, according to latest EU crop observatory data. Over 59% of the imported corn -- at 2.12 million mt -- was from Ukraine, the data showed.

The other leading supplier to EU is Brazil at 1.21 million mt.

Global outlook not too promising

The fall in the EU's corn production comes at a time of tightening corn stocks globally and an estimated smaller production in the world's largest corn producer — the US.

The US as well, is facing prolonged dryness during the peak corn pollination period and that has resulted in a smaller than previously estimated crop. The US corn production is estimated to be at 364.73 million mt, down 5% on the year.

However, another top corn supplier Brazil is expecting higher on year crop at 126 million mt compared to 116 million mt last year.

Global corn production in MY 2022-23 is seen down at 1.179 billion mt from 1.218 billion mt last year. Global ending stocks are also seen lower at 306.68 million mt in MY 2022-23, from 311.84 million mt last year.

Global corn prices have remained largely supported in the past few months owing to the concerns of global tightness and volatility in the market.