USDA ERS report addresses DDGS market potential in China

By Erin Voegele | August 23, 2012

The USDA Economic Research Service has published a new report addressing the Chinese export market for distillers dried grains. The report, titled “China’s Market for Distillers Dried Grains and the Key Influences on Its Longer Run Potential,” examines recent trends in the U.S.-China trade of DDGS, and analyzes factors affecting the competitiveness of U.S. DDGS in the Chinese market. Overall, the report found that demand for DDGS in China is robust, but that slower growth in the U.S. supply of DDGS and uncertainties about Chinese policy may constrain growth in exports to China.

According to the report, one key constraint limiting future growth of DDGS export to China is the projected slower expansion of the supply of DDGS produced in the U.S. over the next decade. This is attributed to the expected slowing of expansion in the U.S. corn ethanol industry. The report noted that the latest USDA baseline projections through 2021 show that the total amount of U.S. corn used to produce ethanol is expected to increase only slightly, from 128 million metric tons (mmt) in 2010/2011 to 139 mmt in 2021/2022. “Based on this projected level of ethanol output, U.S. DDGS supplies will likely expand, but at a much more subdued rate than in recent years,” said the ERS in the report.

However, it is also possible that increasing domestic demand for DDGS will actually cause a decrease in exports to China. “The projected increase in U.S. meat consumption and exports over the next decade could also result in further increases in domestic demand for DDGS,” the report stated, noting that the actual use of DDGS in the U.S. will depend, in part, on the relative availability and prices for corn and soybean meal.

The ERS report also demonstrated that high transportation costs and integration of feed and livestock sectors in the North American Free Trade Association could favor DDGS export to Canadian and Mexican markets, rather than export to China. Alternatively, high feed prices and robust demand from other countries could push DDGS exports to other growth destinations in Asia, such as South Korea, Vietnam and Thailand.

Chinese policy will also impact the potential export market for DDGS. “Favorable trade treatment of DDGS is an important factor that spurred the import of DDGS,” said the ERS in the report. “However, the antidumping investigation against U.S. DDGS reflects the competing interests of livestock producers and domestic supplies of DDGS.” That investigation was dropped earlier this year.

According to the ERS, China’s feed demand is expected to expand rapidly over the next 10 years, driven primarily by a shift in the livestock sector from backyard production to commercial production. While feed demand in China will remain robust, future DDGS sales to China will depend the relative cost of imported DDGS relative to corn, soybeans and other feed options.