February 14, 2011

 

US corn deficit prompts China to seek feed alternatives

 

China will have to seek alternative sources of grain to feed animals as top exporter the US runs tighter on corn supply than it has for decades, while at home a severe drought threatens China's wheat belt.

 

The most likely options for China would be to import more distillers' dried grain or Australian feed wheat. Supply of both is plentiful, in contrast to corn and wheat, which are both witnessing prices near multi-year highs after a series of supply shocks and rising demand.

 

China, already the world's largest importer of ethanol byproduct distillers' dried grains or DDGS, has the potential to take a lot more imports as more feed mills use them to replace corn.

 

US DDGS exports to China skyrocketed to more than 2.9 million tonnes in the first 11 months of 2010, up from almost nothing three years ago, displacing as much as an estimated 1.5 million tonnes of corn imports.

 

Still, the appetite for DDGS may be temporarily slowed by an anti-dumping probe China launched late in December, as imports surged. The commerce ministry expected to make an initial conclusion in March on the probe, a prospect that has driven some buyers to try and cancel shipments due around that time.

 

The nation can also shun expensive US corn if it opts to use rain-damaged wheat from Australia, which can replace corn to some extent in making feed for animals.

 

Australian feed wheat supply is unusually large this year after rains and floods damaged crops. Around half of Australia's 2011 crop of 22 million to 26 million tonnes is likely to be downgraded to feed grade, much more than the four million tonnes of feed wheat a year it typically produces for domestic consumption.

 

Chinese buyers were among the first to buy it - purchasing about 150,000 tonnes of Australian feed wheat last month. International traders based in Australia have snapped up to two million tonnes of the grains from farmers in expectations that demand from animal feed makers would surge as global supplies shrink.

 

The US government slashed its forecast for corn stockpiles by 9% on February 9, projecting the tightest supply since the Great Depression as a record amount of the crop is used to make ethanol.

 

Corn prices in Chicago jumped to their highest since July 2008 after the US report showed stocks would dwindle to 675 million bushels by the August 31 end of the marketing year, a move that could force end-users to scale back use of the grain.

 

The world's second largest corn exporter Argentina is also facing problems, as its corn crop has been hit by the La Nina weather pattern. The Buenos Aires Grains Exchange sees corn output down 17% at 19.5 million tonnes from 23.5 million in the 2009/10 season.

 

Global grain supplies have been tightening for months as droughts and floods coupled with unrelenting demand for feed, food and fuel caused wheat and corn prices to more than double from last summer's lows.