October 11, 2010

US DDGS export set to boost on high corn prices

Surging US corn prices should boost export demand for US DDGS, a competing animal feed produced when corn is processed into ethanol, industry experts said on Friday (Oct 8).

US exports of DDGS are expected to reach 7.5 million to eight million tonnes this year and may grow by to 9.5 million-10 million tonnes in 2011, a roughly 25% increase, traders and analysts said at an industry gathering this week.

Corn prices surged 6% Friday (Oct 8) after the USDA cut is 2010 US corn crop forecast nearly 4% and dropped the average yield outlook to 155.8 bushels per acre, more than four bushels below expectations.

USDA also cut its US corn export view for 2010/11 by 100 million bushels to two billion bushels.

"If corn prices and other feed grain prices worldwide are climbing and DDGS is still price competitive, people are going to look at DDGS as alternative," said Cary Sifferath, US Grains Council regional director for the Mediterranean and Africa.

"I think DDGS have already started to fill that corn demand. China has almost overnight has become a big, big market for US DDGS and a lot of that has to do with the cost competitiveness of DDGS versus Chinese corn into that southern China feed market," said Sifferath, who had been USGC director for China until this year.

"You could say similar things about other places. Western Europe, they are not necessarily short feed grains, but because of that Black Sea region drought, prices are much higher so they are constantly looking for alternatives," he said.

DDGS export volumes are expected to surpass soy meal exports this year. Demand is exploding in China, where a voracious appetite for meat has bolstered the need for animal feed. The country was expected to import two million tonnes of DDGS this year and as much as four million tonnes next year, up from just 8,000 tonnes in 2008, experts said.

By comparison, China imported around one million tonnes of US corn this year, its largest purchases in 15 years, and may import two to three million next year, according to a USGC forecast.

"The price that an importer can import distillers grains, relative to the price of corn and soy meal, is what is going to encourage them to bring it in. A lot of that is going to depend on tariffs or specific taxes. In China, the tariff rate for distillers grains is very low, and that's what has been enabling export growth to China," said Geoff Cooper, vice president of research at the Renewable Fuels Association.

US DDGS output will keep growing as ethanol producers accelerate production to meet renewable fuels targets. So exports will be critical as domestic use of DDGS reaches a saturation point.

US livestock and poultry producers consumed about 24.5 million tonnes of DDGS this year and analysts said US domestic consumption may top out around 35 million-45 million tonnes.