October 27, 2003



EU May Reshuffle Wheat Tariff This Week To Increase Canadian, US Imports


The European Commission could reshuffle its tariff rate import duty regime for low- and medium-quality wheat as early as this week in order to increase the tonnage available for imports of Canadian and U.S. origin, a source close to the Commission said Friday.


The move would be aimed at bringing down European Union grain prices, which have been pushed up by a smaller than expected E.U. crop and a lack of supply from traditional export sources such as the Ukraine and Russia.


"It would be a sensible move to open the door for Canada, who are seen to have sufficient availability of lower quality wheat." Canada has an exportable wheat surplus of 14.5 million metric tons, according to the U.S. Department of Agriculture.


"I expect and hope for changes next week so that the change can take effect quickly before the St. Lawrence stream freezes," the source said. The St. Lawrence is the major transport route for Canadian and U.S. grain from the interior.


The European Union's import quota for low- and medium-quality wheat, which carries a duty of EUR12 a ton, encompasses three contingents, one for wheat of non-U.S. and non-Canadian origin totaling 2,731,600 tons, one for Canadian origin of 38,000 tons and one for U.S. origin of 572,000 tons.


The quota for Canadian origin is exhausted, while only 37,000 tons of the U.S. quota have so far been taken up.


For the largest contingent - essentially wheat of Black Sea origin - 886,414 tons remain, which are unlikely to be filled due to lack of exportable surplus from Ukraine this year, where wheat production has been sharply down on the year due to adverse weather conditions.


Thus, in a bid to curb soaring E.U. grain prices, the Commission could  re- allocate the remaining to tonnage to U.S. and Canadian imports.


"If prices escalate further, (European) livestock producers are going to run out of feed, as forage has also been adversely affected. This could make for an interesting winter," the source said.


European grain traders said they are aware of the possibility of a quota reshuffle, but were cautious about its effectiveness in attracting Canadian and U.S. wheat imports.


"Traders have been discussing this as a possibility, and why not? But at the moment a change wouldn't make a difference since the small window for imports from the U.S. that opened last week closed straight away," one trader said, referring to the brief moment last week when U.S. wheat had a competitive edge over E.U. wheat, which resulted in one cargo of U.S. wheat

being sold to Italy.


Since then, prices on the U.S. wheat market have risen sharply in a technical rally and on concerns over the effect of dryness on new crop plantings. In addition, freight rates, particularly for larger vessels have increased greatly, according to traders.


"But who knows, (imports to) the E.U. might become a possibility again, since the spread might work again because of higher prices here," the trader added.


Prices on the European cash wheat market have risen sharply this week on domestic consumer demand, with French milling wheat, basis Jly and delivered Rouen in October-December, bid at EUR135-EUR137/ton, around EUR2.50/ton higher on the day.


Traders were also wary of the risk of fixing business with the U.S. as too many variables were prone to quick change, such as soaring freight rates denting or eradicating profits.


An E.U. official said a reconsideration of the quota was, "something we're certainly discussing, but there's currently nothing official to report."