Bloomberg News

Ethanol By-Product Shipments to China at Risk, Shanghai JC Says

January 10, 2014

China’s outstanding orders of U.S. dried distillers’ grains, a corn-based feed ingredient, are at risk or being canceled as the country continues to reject a genetically modified strain, Shanghai JC Intelligence Co. said.

The bulk-carrier-sized shipments for delivery between January and March were contracted before inspectors began refusing imports containing the insect-resistant MIR 162 gene, Sylvia Shi, an analyst at the Shanghai-based agricultural researcher said Jan. 8. About 1 million metric tons of such contracts are outstanding, according to a survey of Shi and four traders by Bloomberg News.

The unexpected clampdown on U.S. grain imports has led to rejections of 601,000 tons of corn and DDGS, a by-product of ethanol, according to official Xinhua News Agency. A halt in the biggest buyer China’s purchases of DDGS will hurt prices of corn and reduce profits for ethanol producers such as Archer-Daniels-Midland Co. (ADM:US) Corn futures in Chicago fell to a 40-month low yesterday on speculation that inventory will surge the most in 19 years in the U.S., the world’s biggest producer.

“China’s buying had been the driver for the surge in DDGS prices, and now with this ban, prices in the U.S. will drop,” Shi, a Shanghai JC analyst said on Jan. 8. “Buyers will delay for as long as they can, but it’s questionable whether this issue will be resolved in the next couple of months.”

Market ‘Disruption’

China may be unable to meet its initial expectation to import 7 million tons of corn from the U.S. this year due to “a dilemma causing disruption in the marketplace,” the U.S. Grains Council said in a report Jan. 7.

Corn for March delivery on the Chicago Board of Trade fell 0.2 percent to $4.11 a bushel at 1:52 p.m. in Beijing, after touching $4.08 yesterday, the lowest since August 2010. The spot price of DDGS in Illinois was $190 per ton on Jan. 7, a 12 percent drop from Dec. 31.

China was projected to double imports of the by-product to 4 million tons in the year ending Sept. 30 from a year ago, according to state-owned researcher grain.gov.cn.

Two bulk carriers loaded with DDGS are moored at ports in southern Guangdong province, as their owners, anticipating further rejections, wait to see if the government loosens controls, Shi said.

In two hearings with importers on Jan. 7 and Jan. 8 held separately in Guangzhou and Shanghai, quarantine agents gave no indication that the crackdown will be eased, she said.

Buyers stand to lose about $20-30 per ton on their purchases if they cancel orders, Shi said. “Everyone is hoping for a speedy resolution.”

To contact Bloomberg News staff for this story: William Bi in Beijing at wbi@bloomberg.net

To contact the editor responsible for this story: Brett Miller at bmiller30@bloomberg.net


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