ERS report weighs influences on China's DDGS export market

By Agri-Pulse staff

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, August 29, 2012- While China's demand for feed ingredients makes it an important export market for U.S. distillers dried grains with solubles (DDGS), or the residual co-products from ethanol production, the volume of U.S. DDGS exported to China in the future is highly uncertain, according to a USDA Economic Research Service (ERS) report published this month.

Because the growth in volume of corn-based ethanol is expected to slow, the expansion of supply of U.S. DDGS is also expected to slow in the next decade. According to the latest USDA baseline projections to 2021, total U.S. corn used for ethanol is forecast to increase 11 mmt from 2010/11 to 2021/22, compared with growth of 112 mmt between 2000/01 and 2010/11.

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“Based on this projected level of ethanol output, U.S. DDGS supplies will likely expand, but at a much more subdued rate than in recent years,” stated the report. 

The volume of U.S.DDGS available for export may decline if U.S. domestic use of DDGS increases in the future. ERS pointed out that DDGS are an important part of U.S. livestock feed rations, and domestic feed use is unlikely to fall substantially from the estimated 29 mmt in 2010/11. Increased U.S. meat consumption and meat exports in the next 10 years could also increase domestic demand for DDGS. 

“Therefore, it is possible U.S. domestic use of DDGS could expand faster than production, but this will depend, in part, on the rela­tive availability and prices for corn and soybean meal,” according to ERS.

Most importantly, ERS noted that high transportation costs of DDGS and integration of feed and livestock sectors in the North American Free Trade Association region favor nearby markets, like Canada and Mexico, over Asian markets. However, the agency also recognized that high feed prices and healthy domestic demand in other countries could push DDGS export sales toward other growing desti­nations in Asia besides China, such as South Korea, Vietnam, and Thailand.

Notable factors in DDGS demand include China's rising corn prices and China's policy treatment of DDGS. 

Use of imported DDGS in China is a relatively new phenomenon and limited to a few relatively small feed mills in coastal provinces,” stated the report. “The cost advan­tage depends in large part on trends in U.S. and China corn prices including tariffs and taxes.”

Also, China's feed demand is expected to expand rapidly over the next 10 years. USDA's baseline projections to 2021 project that feed and residual use of corn will expand from 124 mmt to 172 mmt and soybean meal consumption will rise from 43 mmt to 73 mmt.

“This expansion in feed use is driven by a livestock sector shifting from backyard to commercial production, which will likely utilize more corn and soybean meal and fewer inputs such as house­hold and processing waste, crop by-products, vines, tubers, and other forages,” stated ERS.

While feed demand in China will continue at a healthy pace, future DDGS sales to China depend on the economic value of U.S. supplies compared with alternative raw materials including domestic and imported corn, ERS reported.

“DDGS from the United States are one of many sources of raw materials supporting China's growing commercial feed production,” according to the report, which also indicated that China's imports of DDGS were equivalent to roughly 2 percent of feed output during 2010.

“In an environment of rising costs, Chinese feed mills will continue to seek out cost-minimizing raw mate­rials,” the report stated. “If DDGS sales to China are restricted by rising prices or other factors, Chinese demand will shift to other raw materials: corn, wheat, other grains, oilseed meals, and other milling and processing co-products.”

“The emergence of China's DDGS imports is a reminder that feed supplies come from diverse sources, and demand is price-sensitive,” concluded the report.


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