October 5, 2009

 

As the Chinese government limits domestic ethanol production, US DDGS has great market potential because of its high and consistent quality, free of mycotoxins, and stable supply. The US Grains Council offers assistance to US suppliers to help register products with the China's Ministry of Agriculture (MOA) and promotes DDGS use among Chinese millers and livestock farmers.

 

The upward market trend continues in 2009. According to China Customs data, from January to April, China bought 4,492 tonnes US DDGS valued US$983,000. According to US Grains Council (USGC), the US exported 10,000 tonnes valued US$1.9 million to China in the first five months of 2009, already exceeding 2008 trade volumes.

 

After purchasing the first ever US DDGS shipment to China in 2007, Guangdong continues to lead with imports. According to China Customs, 78 percent of US DDGS enters Guangdong via the Huangpu port. Qingdao ranks second accounting for 15 percent. The rest enter Beijing, Nanjing, Ningbo and Shanghai ports.

 

Despite the leap in imports, China still accounts for a small percentage of US DDGS exports which reached 4.5 million tonnes in 2008. Mexico and Canada are the largest importers because their rail systems are connected with US ones. Shipments can be easily transported directly from US ethanol plants to Mexican and Canadian feed mills. Across the Pacific Ocean, the largest Asian buyers are Japan, Taiwan and South Korea. Each bought over 180,000 tonnes in 2008.

 

Given its large population, growing economy and limited arable land, China has voracious appetite for protein feed ingredients. In 2008, it imported 37.4 million tonnes of soy to produce oil for human consumption and soymeal for livestock feeds. In China, Guangdong is the largest feed producer. It produces 15 million tonnes of feed per year and requires 600,000 tonnes DDGS as ingredients. US DDGS has 25-32 percent protein and 10 percent fat. It is a good source of protein, energy and fat as well as phosphorus and fiber for livestock and aquaculture.

 

So, what keeps China from buying more US DDGS, and what should the US industry do about it?

 

In 2008, China produced over 150 million tonnes of corn. According to a veteran Chinese DDGS trader, China can produce 4 million tonnes of corn based distillers grains yearly. However, due to inefficiency and low profit, in 2008, China only produced 3 million tonnes. The key production area is in Northeast China, comprised of Jilin province (highest quality), Heilongjiang and Liaoning. The largest ethanol plant is the Jilin Fuel Alcohol Company which can annually process 1.3 million tonnes corn producing 400,000 tonnes fuel and 320,000 high quality DDGS.

 

Current production and future outlook is 4 million tonnes capacity, but actual production is 3 million; corn or grain based ethanol production is limited by the Chinese government which needs to ensure food supply. The following is the USDA forecast:

 

   -  Total 38 million tonnes

                 

A few are of good quality: 28 percent protein, 7 percent fat. A large percentage is poor due to heat damage during processing: dark colour with smell of smoke.

 

Most are good quality: 25-32 percent protein, 10 percent fat; golden colour (highly digestible amino acid); desirable smell like freshly made bread. Note: Some quality US DDGS have dark colour resulting from excessive solubles added to DDG.

 

Mycotoxin rates are very high for those grown in Henan, Hebei and Shandong, due to high moisture and rainfall during harvest seasons. It limits DDGS usage in swine feed. Mycotoxins may affect sow's fertility and cause piglet deaths but at a very low risk, thanks to cold and dry weather in US Corn Belt areas.

 

Supply is quite unstable, due to inefficient production and capped production. Supply will be short in summers when ethanol plants run out of corn.

 

From the North, DDGS in all ethanol plants are bagged (50 kg or 110 pounds each), then loaded into containers at plants. Ethanol plants to Dalian or other northern ports: in containers by rail or truck Northern ports to Guangzhou ports: in containers by vessel Guangzhou ports to mills: in containers by truck or barge (bagged DDGS may be unloaded at ports or at mills) from the central and east (Henan, Hebei and Shandong): all DDGS are bagged and transported by truck All US DDGS are exported to China by containers in bulk so far. Some containers are loaded in the Midwest such as Chicago and Kansas City. Some DDGS are sent by train in bulk to western ports, then loaded into the containers US ports to Guangzhou: by vessel Guangzhou ports to mills: by truck (unloaded and bagged at port; or unloaded from containers at mills).