A recent announcement by China that it would stop issuing permits for imports of U.S.-produced dried distillers grains has wreaked havoc on the market, sending DDG prices on an unprecedented downward spiral.
China’s move came as a result of the country’s long-standing reluctance to approve the MIR 162 trait in corn, more commonly known as Agrisure Viptera, produced by Syngenta Ag.
Merchandising companies contacted weekly by DTN reported drops in spot prices between $10 and $45 per ton in the past week.
The DTN weekly DDG spot price average fell $22 per ton in the past week, from $192 last week to $170 this week. This is the lowest level the average has reached since December 2010.
This also marks the tenth consecutive week the average has fallen, dropping $69 per ton since the first week of April when the average was $239 per ton.
Allan Assman, manager of distillers grains sales for Valero Energy, said he has never seen such a steep decline in prices.
“I can’t remember the last time we have been this low, probably over two years,” he said, adding that the current value of DDG to corn is at 85%. According to DTN statistics, the value of DDG to corn has hovered between 121% and 138% since the first of the year.
Assman added how different this crisis is from the crash in January when China first began rejecting shipments of DDG containing the MIR 162 trait. After the initial crash, the market bounced right back, he said. That hasn’t happened yet this time, though he still sees hope for the market.
Assman said he believes lower DDG prices will result in increased demand for DDG. “The question always remains as to what the Chinese will do next,” he said.
Other merchandisers told DTN that with export demand from China at a standstill, spring shutdown at plants finished, and production running at full force, there is an excess of product that is driving prices down. Hot weather in some areas is also reducing demand somewhat, as is the fact that with good spring rainfall, pasture conditions are much improved.
MARKET ON HOLD
In any case, merchandisers seem to agree the market will be on hold until there is more information about China’s intentions and the market can adjust.
Joel Karlin, contributing DTN market analyst and commodity manager for Western Milling in Goshen, Calif., said, “This has to be one of the biggest drops ever. Chinese ban has kicked the last leg out of the chair.”
“It is definitely a buyer’s market,” Karlin said. “People are just looking for bids. Any reasonable bid will get hit.”
The U.S. Grains Council and the National Grain and Feed Association both told DTN on Thursday that they still have no official information on the situation in China.
Dick Kasting, director of strategic relations for the Grains Council, said, “We still have not seen anything official from the Chinese government. At this point, there is a great deal of uncertainty. But we continue to be engaged with all our contacts in China and the U.S. government to seek clarity and try to find a way forward.”
CRISIS SHORT-LIVED?
Bob Dinneen, president of the Renewable Fuels Association, told DTN that despite the huge effect on prices, he believes the market crash caused by China’s import ban will likely be short-lived.
“This is what China does. They’re a little schizophrenic when it comes to imports,” Dinneen said. “They are trying to help out their corn growers, but without a doubt, China will continue to need significant volumes of our high-protein distillers feed.”
Staff from RFA recently visited China on a USDA trade trip. At every stop, buyers talked about their concerns over genetically engineered traits; however, Dinneen said that USDA staff did a great job of explaining the U.S. position.
“I suspect this will get worked out sooner or later,” he said. “We will be in constant communication with USDA to make sure a constructive dialogue is going on.”
Dinneen said he believes that, ultimately, DDG end users will begin telling the government that they need U.S. DDG and that will be a helpful force as well.
Despite the plummeting prices, Dinneen said he believes that ethanol plants are doing fairly well at this time.
“The economics in the industry are pretty strong. We have relatively low corn prices and gasoline demand is growing and gasoline prices are strong,” he said. “It would be helpful if we were getting the true value for distillers, but we’ll get through it. This will sort itself out.”
