Declining U.S. DDGs still too expensive for Canada

CNS Canada — A move by China to restrict imports of corn-based distillers dried grains (DDGs) from the U.S. has cut into prices for the ethanol byproduct — but levels are still not cheap enough to see much of an increase in Canadian demand.

While Canada was once the go-to destination for DDGs from the U.S., that is no longer the case and Canada has only imported 93,000 tonnes from the U.S. in the first four months of 2014, according to U.S. Grains Council data. That compares with Chinese purchases during the same period of 1.85 million tonnes.

However, China announced earlier this week that it would no longer issue import permits for U.S. DDGs. China cited concerns over the presence of a genetically modified strain of corn not approved by the country, although most market participants say there were other political issues likely at play in the Chinese move.

“We export 25 per cent of the DDGs produced in the U.S., and China is 50 to 60 per cent of that market… so it’s a pretty significant thing,” said Sean Broderick, DDG marketing manager with CHS Inc. in Minnesota.

Broderick expected China would eventually be back in the market buying U.S. DDGs, as there is an obvious demand, but that may take a few months.

In the meantime, prices will come down to keep the product moving, he added, noting DDGs have already come down by about US$25 per tonne over the past few days.

Jim Beusekom of Market Place Commodities at Lethbridge, Alta., said it was possible U.S. DDG exporters would now be looking to Canada as a destination, but “so far, they’re not competitive on price.”

DDGs will likely displace corn in U.S. rations before prices moved low enough to be competitive with barley in Alberta, he said. However, barley prices are also sliding, which means DDGs would need to drop even lower.

“If they want to get competitive today, they can probably make it happen,” said Beusekom, “but if it takes a month before they get to this market, I don’t know how much (demand) will be left for them.”

He expected some deals would be made, especially as many feeders continue to use small amounts of DDGs in their rations, “but we won’t be seeing large volumes.”

Broderick agreed Canada was an unlikely destination for the DDGs that now find themselves without a home, commenting that “I don’t know if Canada really needs (DDGs) right now.”

— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

 

 

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