March 23, 2010

China feedmills may double DDGS imports

Feedmills in China this year may double imports of dried distillers grains with solubles (DDGS), a by-product from turning corn into ethanol, according to reports.

Purchases of the feed additive may increase to 1.5 million tonnes from 650,000 tonnes last year, said Xu Lihuan, vice president of Dacheng Food Ltd., while imports is expected to exceed one million tonnes.

China's tightening corn stockpiles are spurring feed makers to seek supplies in a country that is the world's biggest pork producer and consumer.

Demand for corn exceeded production by 3.5 million tonnes this marketing year due to a drought in 2009, according to Jilin Grain Group Co. executive Wang Zheng. The country has 21 million tonnes from the previous carryover inventory, Wang said.

 "Imports in the first two months were 300,000 tonnes, so 1.5 million tonnes for the whole year are foreseeable at this rate," Xu said. "If the supply of corn is as tight as some have predicted, DDGS as a replacement is looking good," he said.

According to analysts, corn prices in Dalian may advance to more than RMB2,000 (US$293) per tonne by the summer, up at least 4.7% from RMB1,911 (US$279) a tonne on the Dalian Commodity Exchange.

While China's government is wary that imports of large quantities of corn may displace its own production, DDGS , being a smaller commodity, may not be seen as a challenge, Xu said.

As the country's corn output last year was reduced by dry weather, the pressure for a good year of harvests is building, so replacement supplies will be welcomed by feed mills, he said.

Meanwhile, the Chicago Mercantile Exchange Inc. plans to offer a contract for DDGS on April 26, the bourse said last month. The futures, which are for 100 short tonnes, will be available on the CBOT through Globex electronic trading, it said. Current US output of DDGS is over 16 million tonnes, valued at US$2 billion, it said.