Slowing China Demand for Feed Ingredient Jolts U.S. Grain, Soy Markets

Slowing China Demand for Feed Ingredient Jolts U.S. Grain, Soy Markets

Beijing Has Cut Purchases of Dried Distillers’ Grains, a Co-Product of Corn Ethanol, Amid GMO Concerns

June 27, 2014 12:52 p.m. ET

Dried distillers’ grains, a byproduct of ethanol production used as feed for livestock, are loaded onto a grain truck at a North Dakota ethanol plant. Bloomberg News

A tough stance by China on imports of a widely used U.S. feed ingredient is rattling grain and soy markets.

The Asian country in recent weeks has curtailed purchases of U.S. dried distillers’ grains, a co-product of corn ethanol that is fed to cattle and pigs, amid concerns the shipments may contain a genetic modification that Beijing hasn’t approved, said industry executives and traders. The action comes after China also slowed imports of U.S. corn [1]over concerns about the GMO trait.

China stopped issuing new import permits for the ethanol co-product, also known as DDGs, several weeks ago, according to people in the grain industry. Chinese government officials haven’t confirmed a change in policy and didn’t respond to repeated requests for comment.

The move has caused prices of the ingredient to slide about 19% in the U.S. since June 3, based on Agriculture Department data.

The wider availability of the product in the U.S. has pressured prices for competing animal-feed ingredients, including corn and soybean meal. Corn futures have dropped 5% this month. Corn for July delivery rose 0.1% to $4.43 a bushel on Friday at the Chicago Board of Trade.

Futures for soybean meal, made from crushed soybeans and widely fed to hogs and chickens, have dropped about 6% this month, reaching a three-month low on June 20 at the CBOT. Both DDGs and soybean meal are rich in protein, so livestock feeders are expected to substitute DDGs for the meal as prices fall.

“DDGs are cutting into some corn usage and cutting into meal prices,” said

Sterling Smith,

a futures specialist at brokerage Citi Futures in Chicago. “The DDG ban has changed the face of the DDG market.”

The wholesale price for the product in the eastern U.S. Corn Belt was $167.50 a ton on June 24, down from $207.50 on June 3, according to government data.

“People will be feeding the maximum amount of DDGs they can—it’s very price-competitive,” said

Al Kluis,

owner of brokerage Kluis Commodities in Wayzata, Minn.

The price drop could lower profits for U.S. ethanol producers, many of which count on the product for 20% to 25% of revenue.

The U.S. is expected to produce 42.9 million tons of DDGs in the 2013-14 season ending Aug. 31, up 8.7% from a year earlier, according to Iowa State University data. Of that, about one-quarter will be exported.

China has been a major buyer in recent years. It accounted for a third of U.S. exports last year and more than doubled its imports to 1.85 million tons in this year’s first four months from a year earlier.

China’s restriction on DDG imports comes after it all but stopped buying U.S. corn because some shipments contained the MIR 162 genetically modified trait, developed by Swiss seed and chemical maker

Syngenta[2] AG SYNN.VX -0.12%[3]

. Since late last year, China has rejected some corn and DDG shipments because authorities said they contained the banned GMO strain. The rejections, including over one million tons of corn, have hurt profits for U.S. grain traders, including Cargill Inc. and

Archer Daniels Midland[4] Co. ADM -0.25%[5]

Some of the rejected corn shipments were resold to buyers in other parts of Asia, such as Vietnam, South Korea and Japan, according to the USDA. However, it is much harder to divert shipments of DDGs, as China is the biggest buyer of the feed ingredient from the U.S. by a large measure.

Ryan Thorpe,

chief operating officer at Tharaldson Ethanol in Casselton, N.D., said the move is “very concerning,” considering his company exports as much as 40% of its DDGs to China. Mr. Thorpe said he thinks China is using concerns over Syngenta’s biotech trait as a reason so it can pay less for livestock feed[6].

China’s restrictions are affecting purchasing decisions by dairy farmers in its own country.

Li Ruibin,

technical director of Fucheng dairy farm in Hebei province, which has some 8,000 cows, said he can no longer buy imported DDGs. They cost about the same as domestic varieties, but he said he thinks they are of superior quality. He said he already faced higher feed costs because drought in California had boosted the cost of imported alfalfa from the U.S.

U.S. grain and ethanol industry officials said they hoped China soon would ease the restrictions. “I would hope this sorts itself out in weeks, not months,” said

Bob Dinneen,

president of the Renewable Fuels Association, a trade group for U.S. ethanol companies.

—Isabella Steger,

Andrea Gallo

and Chuin-Wei Yap contributed to this article.

Write to Tony C. Dreibus at[7]

DDGS Market price

End users like dairy and livestock producers are finding new appeal in dried distillers grains as prices of soymeal are rising, according to an article by Agrimoney

The recent soymeal record prices are due largely to strong demand from both domestic and export markets that seek the high-protein feed ingredient. Also factoring in the equation is that world soybean supplies have been hit by drought-affected harvests last year in the U.S. and South America.

However, those high prices could send livestock producers, seeking for the least cost rations, back into the DDG market for better deals.

The price of soymeal continued to climb, reaching $520.80 per ton on Tuesday, pushing the value of DDG relative to soymeal to about 44%, presenting a definite value for end users.

When DDG hit record highs during August 2012, it priced itself out of some rations when its value relative to corn soared above 100% where it remained, other than occasional drifts downward, until three weeks ago, reaching 92% on Tuesday.

Merchandisers have reported to DTN there are ample amounts of DDG currently on the market, with some hesitant buying in recent weeks as buyers awaited last week’s holiday weekend and hoped for price declines. With the value of DDG so low for corn and soymeal, demand for DDG should spark as DDG recaptures its place in some rations.