China clouds otherwise bright grain export outlook
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WASHINGTON, Oct. 22, 2014 - Biotechnology barriers erected by China to U.S. grain shipments have left a cloud of uncertainty over the U.S. grain export industry, which is experiencing significant growth in other regions of the world, Tom Sleight, president and CEO of the U.S. Grains Council (USGC), said Tuesday at Export Exchange 2014, an international trade conference in Seattle.
But there's growth in the Western Hemisphere, particularly in Mexico, where biotechnology is not an issue, and in Colombia, where U.S. shippers provided more than 95 percent of the country's 3.4 million ton corn market in the 2013-2014 marketing year, which ended Aug. 31. Sleight says North Africa, Egypt, Morocco and Tunisia took a combined 3 million tons of U.S. corn during the year, a year after corn sales to the region “dropped off the charts.” And this year, “Egypt took nearly as much corn as China, and Morocco and Tunisia are again buying U.S. corn.”
For the 2014-2015 marketing year, Sleight said USGC is focusing on all exports, including ethanol and coarse grain co-products, to Latin America, Tanzania, China and Japan, as well as building demand in livestock sectors. The council's other priorities include working to maintain a consistent dialogue with customers, while focusing on tax and trade barriers, particularly non-tariff barriers related to biotechnology like the one enacted by China. Major trade agreement negotiations like the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership, are particularly important to the U.S. grain industry, he said.
Another speaker at the conference, Curtis Jones, the director of economic analysis for Bunge Global Agribusiness, said the countries of North Africa, as well as the Middle East and Asia will continue to lead growth in demand over the next five years.
Still, the optimistic export picture was dimmed by China, which earlier this year began rejecting U.S. exports of dried distillers' grains with solubles, an ethanol by-product known as DDGS, unless they were certified free of Syngenta's genetically modified MIR 162 corn trait. The development triggered lawsuits as well as uncertainty within the industry. China is a major market for DDGS as well as the largest buyer of U.S. soybeans.
Geoff Cooper, senior vice president of the Renewable Fuels Association, said supplies of DDGS will remain stable at around 35-37 million metric tons in each of the next two marketing years, but determining demand is more complicated.
The U.S. exported 12 million metric tons of DDGS last year, with half of that amount going to China. This year, Cooper said he expects global exports of 7 million tons, but added, “it all depends on the situation in China.”
China entered the DDGS market in 2009 and was a “good trading partner” for the product until July 2014 Cooper said. That's when the Asian nation began requiring the U.S. government to certify that every shipment of corn or DDGS is free of MIR 162. Cooper said that was “undoable.”
“There's lot of uncertainty about where things are headed with China,” Cooper said. “If the issue is not resolved, [DDGS] exports to China will dramatically slow or eventually stop.”
Even if the situation were resolved tomorrow, it will take more than a few months for the U.S. to recover that market, he said.
Cooper said domestic DDGS consumption will need to expand by 5 million tons to offset the lost exports, but he said there is room for U.S. consumption growth. As reduced oil and low oil varieties become more common, livestock feeders could incorporate higher amounts of DDGS in feed grain for poultry and swine.
“Many folks moving this product have immediately found alternative markets” for DDGS that had been going to China, Cooper said. So if China resumes DDGS imports it is going to take time to re-establish supply channels, he said.
With demand down, DDGS prices are likely to remain low compared to other feed ingredients in the next two years, Cooper said. He prices the product at 75-90 percent the price of corn and 35-40 percent the price of soybeans.
Another major area of uncertainty is ethanol production, according to participants at Export Exchange 2014, which was hosted by USGC and the Renewable Fuels Association (RFA). The reason - the EPA proposal last year to reduce the Renewable Fuel Standard (RFS) requirements. The agency is reviewing comments to its plan, which would cut total biofuel blending from 18.15 billion gallons specified for 2014 in the 2007 RFS legislation to 15.21 billion gallons. The measure also would drop the corn ethanol requirement from 14.4 billion gallons for 2014 to a little more than 13 billion gallons, less than the 13.8 billion gallons required in 2013.
RFA CEO Bob Dinneen said he is “anxiously awaiting” the government's decision on RFS volumetric levels, which are several months overdue.
“We will have the largest corn crop in recorded history,” Dinneen noted. “Now is not the time to roll back the RFS.”
If the administration does stick with its proposal, he said RFA “will pursue every option…and that includes litigation.”
Ethanol exports this year are expected to hit 800 million gallons, which is short of the record of 1.1 billion gallons, but above the 620 million shipped in 2013. Dinneen thinks the industry can get back to record export levels. “If the U.S. doesn't want to use us, there are plenty of other countries around the world that do,” Dinneen said.
He said the uncertainty surrounding the RFS is significantly impacting investment in second generation ethanol plants and cellulosic biofuel facilities like POET-DSM's Project Liberty in Iowa and Abengoa in Kansas.
“If the country is sending a signal that it's not really serious about developing these technologies or demanding oil refiners to use increasingly renewable fuels, then they'll take their technologies elsewhere,” Dinneen said. For example, DuPont recently signed a memorandum of understanding with Macedonia to help develop the cellulosic ethanol market in that country.
USDA predicts 128 million tons of corn will be used to make ethanol in the U.S. in 2014-15.
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