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The dried distillers' grains with solubles product sells itself once foreign feeders see what it can do. That has led to a tenfold jump in U.S. exports since 2004.
Tight corn supplies, cutbacks at U.S. ethanol plants, and high export prices have stalled U.S. sales of dried distillers' grains with solubles (DDGS) to foreign livestock feeders. But underlying demand appears good, which could lead to a rebound once supplies expand and prices retreat.
On a dollar basis, U.S. DDGS exports continue to climb, due to high prices. But those same prices are causing foreigners to buy less tonnage. Based on USDA figures for the first eight months of 2012, full-year DDGS exports through December looked like they should be close to 2011's 7.64 million tons. But on a dollar basis, 2012 exports were running about 11.6% higher.
Alvaro Cordero, who monitors U.S. DDGS trade for the U.S. Grains Council in Washington, estimated late in the year that 2012 export tonnage was running about 2% lower than in 2011. He calls that a good performance, given the higher prices that importers face this year. As an example, he notes that U.S. DDGS was quoted at the time near $348 per ton FOB at the export terminals near New Orleans. That's well above the $250-range one year earlier; it was about $210 in 2010.
“The DDGS market is a roller coaster,” says Cordero. “It has the same volatility that we've seen in the corn market.”
Although tonnage is down this year, a bright spot is that China is expected to increase its imports. In 2010, when U.S. DDGS exports peaked, China accounted for 2.5 million tons, says Cordero. But in December 2010, China filed an antidumping case against U.S. DDGS, and China's 2011 imports fell to just 1.3 million tons.
China dropped the charges this past July, but new Chinese business is not yet reflected in USDA's most recent figures for January-August.
With China's DDGS imports cut in half in 2011, that year's total U.S. exports fell to 7.64 million, from 9.03 million in 2010. During the first eight months of this year, the pace of shipments remained close to the 2011 level.
Exports are tough when 75% or more of all DDGS produced in the U.S. is fed domestically. This year, the supply of DDGS will drop, as a result of the short corn harvest. The 2012 U.S. corn crop was down 13.4% from 2011, and 2012-2013 ethanol production is expected to drop 10%, says USDA. Cordero looks for a 10% to 20% drop in U.S. DDGS output.
“With the ethanol plant shutdowns, there's less DDGS out there on the market,” says Cordero. “It's definitely had an effect on price.”
That has caused a slowdown in exports that Cordero sees as temporary. With 120% to 135% of the feed value of corn, DDGS has been an easy sell overseas. “The market is embracing the product very well,” says Cordero.
Meanwhile, the product is changing, as U.S. corn plants extract more and more of the oil from DDGS. Cordero estimates that the oil content of today's DDGS is down about 3% from a year ago. The plants can boost their profits by selling the oil separately, but the lower fat content reduces the energy value of the DDGS. It increases the protein content, however, up to about 26%.
With representatives in 15 countries around the globe, Cordero's group is busy educating foreign livestock feeders on the changes taking place in the oil and protein content of U.S. DDGS.
The council is also monitoring competition on the world market, as eastern Europe and Latin America enter the DDGS export arena. Cordero says that Hungary is exporting DDGS to markets around the Mediterranean. Meanwhile, Cordero knows of at least one new plant in Uruguay and seven in Argentina that are built or proposed.
He looks for some pressure on U.S. DDGS export prices in the spring, as the new South American corn crop is harvested.