On December 15, the Canadian Border Services Agency enacted a preliminary duty, effective immediately, of US$1.65 per bushel on unprocessed corn imported into Canada from the U.S.
"This decision is in response to a complaint filed on August 12 by corn producers in Ontario, Manitoba and Quebec who complained that U.S. corn producers were being subsidized and exporting corn at prices below the cost of production," explains Ron Plain, University of Missouri economist. "The duty is composed of a 58 cent duty for dumping (selling below cost of production) and a $1.07 duty for countervail (governmental subsidies). A final decision on the complaint is due on or before March 15, 2006."
Duty has little impact on U.S. corn prices
"The new duty will likely have a minimal affect on U.S. corn prices, but a major impact on Canadian corn prices," says Plain. "Last year, Canada imported 93 million bushels of corn, presumably, nearly all from the U.S. That equaled less than 1% of the 2004 U.S. corn crop, but 26% of 2004 Canadian corn production and 9% of Canadian coarse grain production.
"At $1.65 per bushel, this new duty will likely stop movement of unprocessed corn from the U.S. to Canada," he adds. "An extra 90 to 100 million bushels on the U.S. market should push U.S. corn prices down only a few pennies per bushel. A shortage of 90 to 100 million bushels of corn in Canada has the potential to raise Canadian corn prices by more than a dollar per bushel."
Canadian livestock breakevens will climb
"Needless to say, the Canadian livestock industry is not happy about this new duty," notes Plain. "A spokesman for the Canadian Cattlemen's Association estimates the duty could add $100 to the cost of feeding cattle in Ontario. The Canadian Pork Council estimates the duty could add up to $20 Canadian to the cost of producing a slaughter hog in Canada.
"Suppose the duty remains in place for more than a few weeks. Also suppose Canadian livestock producers are not able to pull an end run on the levy (perhaps by importing corn from China or importing sorghum, DDGS, or complete feed from the U.S.)," he adds. "Then we should see a dramatic rise in the number of feeder livestock exported from Canada to the U.S.
"The Canadian hog industry nearly doubled in size during the past decade," he notes. "This new Canadian duty has the potential to make it shrink as fast as it grew."