June 16--If the Chinese increase testing of an unapproved biotech trait in corn, farmers in the Upper Great Plains that sell significant amounts of corn and dried distillers grain (DDG) products there will get hit in the pocketbook.
Dick Kasting, director of strategic relations for the U.S. Grains Council in Washington, D.C., tells Agweek that the future of the issue is difficult to predict. The U.S. regulatory system has long approved MIR 162, which is a genetically modified strain of corn approved here for production but not yet in China. Because of comingling and the accuracy of detection systems today, there is a high risk of detection in most corn and DDG shipments leaving the U.S., Kasting says.
China had been accepting shipments of U.S. corn and DDGs, a byproduct of ethanol production, presumably containing MIR 162, a Syngenta trait used on about 3 percent of U.S. acres in 2013. Then the country found it in some shipments in November, and earlier this year, China started testing whole corn and rejected some shipments. There were reports in the first week of June that China would not grant new import permits, but there have been no definitive statements from China about a policy change, Kasting says.
China has announced a "zero tolerance" policy for "unapproved events" of biotechnology. U.S., Argentina and Brazil have all approved the trait for production. Countries like Japan, Korea and Taiwan have all accepted it, Kasting says. China has been in the approval process for more than four years.
China was a net exporter of corn until 2008. The country became a net importer importing some corn in 2010 and accelerated imports in 2011 and 2012. The World Agricultural Supply and Demand Estimates report in February estimated that China would import 5 million metric tons of corn grain for the 2013 to '14 marketing year, but since has reduced that figure to 3 million metric tons.
A Foreign Agriculture Service report says China had accumulated 2.7 million metric tons of corn from the U.S. and had outstanding sales of 317,000 metric tons, as of June 9.
Kasting says any significant disruption in this trade is costly both to U.S. exporters and producers and to end users and consumers in China. "It's unfortunate for both sides, and we want to see this quickly resolved," he says.
The Grains Council reported world trade of 9.7 million metric tons of DDGs in 2013 and that about 4.9 million metric tons went to China. That was up from world trade of 7.4 million metric tons in 2012, of which 2.1 million metric tons went to China. it became the biggest importer of U.S. DDGs in 2012, surpassing Mexico, and it increased imports dramatically in 2013.
It isn't clear what is behind the interest in the MIR 162 trait at this time. There is internal Chinese debate on biotechnology, but also other speculation that the Chinese domestic crop is large enough to offset its own needs or the Chinese government is using the issue to retaliate against geopolitical or diplomatic issues that haven't been revealed, according to trade sources.
If the DDG trade is disrupted, that will hit home.
Ryan Thorpe, chief operating officer of Tharaldson Ethanol in Casselton, N.D., says roughly 20 to 25 percent of his company's revenue is from byproducts including corn oil and DDGs, and recently about 30 to 40 percent of the DDGs have gone to China. Typically, the DDGs are railed to the Pacific Northwest and then barged to China.
Whole corn sales have slowed and alternative sales are from South America and Ukraine, Thorpe says. He says long term it will have an impact on prices farmers are paid for grain.
"China does what's best for China," Thorpe says. "I think it's a situation that they bought a bunch and they wanted to lower the price. This is an excuse so they can stop issuing their import quotas."
Tharaldson sells to China through a broker.
Gavilon Grain LLC, for example, buys a quantity of Tharaldson's DDGs and takes the risk for it. "We watch it closely. But we put our sales on, and the guy that buys it from us gets to deal with China," Thorpe says.
He says Tharaldson is insulated by forward pricing, so it can handle changes in the short-run. But if the import policy goes on for an extended period, it means selling somewhere other than China and perhaps at a lower price. Corn dropped 15 cents per bushel in two days after the announcement.
Meanwhile, ethanol profit margins were fantastic in 2013 and look to be as good or better in 2014, Thorpe says. "It's long overdue and great to see."
Jeff Zueger, chairman of the North Dakota Ethanol Council and general manager of Blue Flint Ethanol of Underwood, N.D., says the Chinese development will have a negative impact on the values of DDGs.
"It depends on how long they hold this in place," he says. The market impact will in part depend on how successful the 2014 corn crop is. He says China had been a very good market and now commodities will need to move elsewhere.
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