Distillers industry looks toward good marketing year, FSMA

By Susanne Retka Schill | May 15, 2015

The China market was the unofficial theme of the 19th annual Distillers Grains Symposium held in Kansas City May 12-14. Not only did multiple speakers refer to the Asian country's market influence in their presentations, but about 30 Chinese attended, representing multiple companies wanting to make connections within the U.S. industry.  

Randy Ives, director of ethanol services for Gavilon, recounted the market disruption late last year when China stopped DDGS shipments over concerns of the unapproved genetically modified corn trait, MIR 162. Shipments have resumed, but it does raise the question whether China can be considered a reliable market. "Yes," Ives said. "But we have to remember, they have their own farm program." Government actions intended to support their agriculture are offset, however, by subsidies making domestic corn expensive, he said. In addition, quality issues and feed needs mean U.S. imports are likely to continue. Ives outlined a number of other market factors in his talk, concluding that projections indicate the 2015 DDGS production should be just under 40 million short tons. That will leave about 9.5 to 10 million tons for exports. "That's doable," he said. 'We've exported that much in the past." 

Alvaro Cordero, director of global trade for the U.S. Grains Council, also addressed the Chinese market influence in his presentation. "When China is in the market, we see DDGS priced at a premium above corn," he pointed out. While some projections call for flat market demand for the next five years, his outlook is that the export market will continue to grow. And, though there is concern in some sectors about low oil prices restricting ethanol production, he said he is confident distillers grains supplies will be sufficient. He outlined distillers competitive position relative to other sources of protein and the impact that arbitration opportunities have on markets. Transportation quotes, for instance, often favor U.S. product when compared to European or South American suppliers, for example, even though the physical distances are greater. In addition, the recovery of the corn export market is creating opportunities for combined ship cargos of corn and distillers.

Two other speakers addressed another dimension of distillers grains marketing. Bart Vance, Atlas Commodity Markets, started his comments by telling the group that on Monday, the CME had quietly delisted the distillers grains futures contract. "This is a good thing," he said, explaining, “it needed to be discontinued, so we can retool it." Introduced in 2010, the distillers futures contract has not been actively traded, mostly due to unworkable features. He encouraged the audience to be involved in the development of a new contract. "The trade is wanting comments from industry so they can develop a contract that is tradable and deliverable," he said. 

In the next few months, distillers grains marketers should be getting another tool as outlined in a talk by Tim Worledge from Platts. The company recently completed a study of the distillers grains product flows, he explained, to evaluate whether it could successfully provide its price reporting service to the industry. A proposal is being developed now that should be announced in the next two or three months for daily price assessments at Chicago and New Orleans. The reports will aim to capture cash prices on truck, rail and barge movements heading to exports through the Gulf and the Pacific Northwest. 

On the last morning of the symposium, two speakers addressed the new regulations being anticipated by the distillers grains industry. Richard Sellers, vice president of legislative and regulatory affairs for the American Feed Industry Association, reviewed a number of the issues surrounding the forthcoming final rules implementing the Food Safety Modernization Act. AFAI has launched a series of webinars to help the industry prepare, he said, and once the details of the final rule are published, the organization is planning several training sessions and webinars. 

One change that ethanol producers need to be aware of, he added, is that the registration requirement created under the bioterrorism act has been modified. “If you supply an ingredient that goes into food for human or animals, you’re now required to register every two years.” It’s free and can be done online, he added, but those who haven’t done so yet may already be in violation.  Even though the Food and Drug Administration isn’t expected to publish the final rule until the end of August, he explained, the law went into effect in July 2012.  

Everyone producing anything going into feed is going to be affected by FSMA rules, Sellers said, and even those falling under exemptions are likely to have demonstrate compliance because their buyers are going to need to verify suppliers. “This law is so pervasive, so huge, we’re reaching back to mining companies,” he said. The AFAI has told FDA that feed mills can control significant hazards through good manufacturing practice protocols (GMPs), which he added, “You probably do now, but it’s not written down and documented.” 

Sellers strongly encouraged the ethanol industry to get engaged with FDA. “There are unique issues with additives in the ethanol industry that drives FDA crazy,” he explain, pointing out that FDA has singled out the ethanol industry in a way that has not happened other industries. “This is an opportunity to educate the agency and tell them how you do things. They need to get into plants and see your operations.” 

Matt Frederking, Ralco Nutrition, continued the discussion on FSMA by walking through the process of establishing a HACCP program, a hazard analysis critical control points. FSMA does not require HACCP, he explained, “but it’s a systematic way to [comply].” The feed industry has been a proponent of voluntary HACCP, he said, adding that in practice, many feed facilities will not end up with many critical control points. They will, however, have to prove how they established that.

Many speakers at the symposium referenced the coming FSMA regulations as they talked about the need to prepare and being thinking about the best procedures to handle antibiotics and chemicals used in the process, monitoring for mycotoxins and minimizing the potential for contamination from birds in the grains building. Other speakers addressed ethanol process practices that impact DDGS quality, new technologies and high protein products, along with nutrition and handling concerns in the four major livestock categories of beef, dairy, swine and poultry.  Next year's symposium will be held in St. Louis.