Beyond Boats To China
by Tom Bryan (Ethanol Producer Magazine) After halting distillers grains imports late last year, the world’s top DDGS buyer is poised to resume business, but on what terms?
The prospect of China reissuing distillers grains import permits bodes well for the product’s American exporters, but Randy Ives isn’t ready to gloat about it. “We have to be cautious,” says the longtime DDGS marketer and director of ethanol services at Gavilon. “The uncertainty from China has put the industry in a tough position in the past. Collectively, we need to take additional steps to manage the contract performance risk that’s been an issue before.”
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American exporters, logistics providers and Chinese importers together lost millions as communication was lost, contracts were broken and DDGS prices slid more than $100 a ton. By October, imports to China were nil as the commodities world waited for a resolution.
As painful as China’s fourth-quarter DDGS timeout was, Ives says, the market displayed incredible resilience and American traders remained buoyant through it all. “Our product’s global market is larger, more distributed and more stable than it used to be,” Ives says. “We have buyers in 80 countries now, so when China stepped out last fall, customers in other nations stepped in and have stayed. On top of that, we knew China would come back. We just didn’t know when.”
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Still, the end of the MIR 162 ban does mean that DDGS exports in 2015 have the potential to exceed the record volumes sold in 2014, according to Alvaro Cordero, manager of global trade at the U.S. Grains Council. “Despite how 2014 ended in China, distillers grains had a fabulous year—a record year—and we’ll probably do it again,” says Cordero. “By October, when China started to shut down, we had already achieved higher annual DDGS export sales than we had for the entire previous year.”
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At peak, China was importing almost 20 percent of all distillers grains produced in dry form in the United States. “That’s sort of insane,” Ives says. “If we want to do what’s best for the industry, we need to continue to diversify our demand base.”
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While China consumes 50 percent of all DDGS exports, Cordero says it is important to remember how critical other large, medium and small markets are. Since October, for example, Mexico has been the world’s top DDGS importer as China momentarily left the picture. In fact, America’s free-trade partner to the south was trending toward 1.5 million metric tons of DDGS imports at the end of 2014. “Mexico stepped up pretty seriously in the fourth quarter,” Broderick says.
Cordero says 13 of the world’s top 15 DDGS importers increased their consumption of the product last year. “Mexico was up 21 percent. Japan was up 36 percent. Korea ended up more than 70 percent,” he says. “Look around the world. Look at exports to the U.K., Columbia, Thailand and Indonesia. They’re all up by two digits.”
Charles says North Africa is another bright spot for DDGS exports. “Algiers, Algeria and Morocco are getting additional traction,” he says.
Egypt, too, is a growing market for distillers grains.
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In Europe, where DDGS is difficult to import because of EU restrictions on genetically modified corn, only Ireland, Turkey and Spain remain significant buyers of the product.
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Nicaraugua, too, has huge growth potential with more than 5 million head of cattle. “They already buy DDGS—very little and just for poultry—so we just need to educate their beef industry,” Cordero says.
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“Japan and South Korea are consistent 500,000-metric-ton markets,” Cordero says. …. “Somebody is trading to Panama, even though they only take 12,000 tons a year.”
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Marketers of DDGS expect the product’s price to stay around 110 to 120 percent the price of corn in 2015, but they’re remaining conservative with their predictions. READ MORE
