December 16, 2009

US exporters of DDGS find good demand in China

The soy market has been strong because of record exports, particularly higher Chinese demand, which has consumed about 20% of the 2009 US soy crop.

Economists at the Iowa State University Center for Agriculture and Rural Development (CARD), USDA's Economics Research Service, the UN's Food and Agriculture Organization, and Texas Tech University ventured to Chinaand report there is great interest in DDGS, which would add value to the US ethanol industry.

Their report reflects nearly a 10% expansion in the Chinese economy over the past decade, which has provided increased supplies of meat and dairy products to the Chinese consumer, and they say there is a need to expand production of livestock products to meet a future need. Chinese agricultural land cannot supply the food to meet demands and the political system will have to address the issue of food supply in the near future.

China is seen to import 1.4 million tonnes of meat in the next decade, but the Chinese will also need to import livestock feed as well. USDA projects China to become a permanent corn importer in 2011, after years of alternating as a net exporter and net importer. The economists who studied the Chinese market for feedstuffs say there is a consensus of the need for the product, but an uncertainty of the mix of products.

However, experts say China is a potential market for an abundant US supply of DDGS, “All market outlooks indicate that at a time when China needs to import more grains for its livestock sector, the US will grind 37% of its total corn production as feedstock for its ethanol production, creating a likely shortage of corn and a high corn price in the world market.”

Currently, corn has an 87% share of the Chinese feed market with wheat at 10%. Soymeal has a 64% share of the protein market with rapeseed meal at 19%. The researchers believe that the potential to import DDGS is large, bolstered by the emergence of commercial hog farms and they question how feed demands will change with the development of those livestock facilities.

A maximum feeding rate is seen to require 3 million tonnes, and a low inclusion rate requires 2.4 million tonnes. The economists say that would mean a market for 35% of the projected surplus of DDGS available for export.

With a new market for surplus DDGS, the economists say livestock producers in the US and China will benefit, "The main result of the microeconomic analysis strongly indicates that the use of DDGS in the feed ration lowers the cost of feeds for both the US and China."

According to the economists, this result provides strong evidence that sufficient economic incentives exist in the development of the DDGS market in China, which can potentially be supplied by imports from the US. In addition, with the same level of incentives, the DDGS market in the US developed and expanded to reach the current outcome of the market.

US economists note that little study had been given to the use of DDGS by Chinese livestock feed researchers, but economists were quickly concerned about the presence of mycotoxins, and especially aflatoxin. Their second tier concern was the variability of nutrient content, which is an unwanted uncertainty.