Tuesday, December 15, 2009
Selling DDGS To China Benefits US Livestock Producers
The soybean market has been strong because of record exports, particularly because of the Chinese demand, which has consumed about 20% of the 2009 US soybean crop. Apparently, the Chinese pork industry is hungry for soybean meal. But what other US feedstuffs could the growing Chinese livestock industry want? How do you say DDGS in Mandarin?Economists at the Iowa State University Center for Agriculture and Rural Development (CARD), USDA’s Economics Research Service, the UN’s Food and Agriculture Organization, and Texas Tech University ventured to China and report there is great interest in DDGS, which would add value to the US ethanol industry. Their report reflects the nearly 10% expansion in the Chinese economy over the past decade, which has provided increased supplies of meat and dairy products to the Chinese consumer, and they say there is a need to expand production of livestock products to meet a future need. Chinese agricultural land cannot supply the food to meet the need and the political system will have to address the issue of food supply in the near future. There are expert opinions that China will be importing 1.4 mmt of meats in the next decade, but the Chinese will also need to import livestock feed as well. USDA projects China will become a permanent corn importer in 2011, after years of alternating as a net exporter and net importer.
The economists who studied the Chinese market for feedstuffs say there is a consensus of the need for the product, but an uncertainty of the mix of products. However, they say China is a potential market for an abundant US supply of DDGS, “All market outlooks indicate that at a time when China needs to import more grains for its livestock sector, the U.S. will grind 37% of its total corn production as feedstock for its ethanol production, creating a likely shortage of corn and a high corn price in the world market.” The economists say the unanswered questions are whether Chinese feed manufacturers will adopt DDGS as an ingredient, and whether China has the logistics to handle such a product.
Currently, corn has an 87% share of the Chinese feed market with wheat at 10%. Soybean meal has a 64% share of the protein market with rapeseed meal at 19%. The researchers say the potential to import DDGS is large, bolstered by the emergence of commercial hog farms, and they rhetorically ask how the demand for feed will change with the development of those livestock facilities. They say a maximum feeding rate would quickly require 3 mmt, and a low inclusion rate would still require 2.4 mmt. The economists say that would mean a market for 35% of the projected surplus of DDGS available for export.
With a new market for surplus DDGS, the economists say livestock producers in the US and China will benefit, “The main result of the microeconomic analysis strongly indicates that the use of DDGS in the feed ration lowers the cost of feeds for both the U.S. and China. This result provides strong evidence that sufficient economic incentives exist in the development of the DDGS market in China, which can potentially be supplied by imports from the U.S. With the same level of incentives, the DDGS market in the U.S. developed and expanded to reach the current outcome of the market.”
When speaking with Chinese livestock feed researchers, the US economists learned that little study had been given to the use of DDGS, but they were quickly concerned about the presence of mycotoxins, and especially aflatoxin. Their second tier concern was the variability of nutrient content, which is an unwanted uncertainty.
Summary:
The potential for DDGS from US ethanol refineries is a distinct possibility to become a valuable export to China to feed a burgeoning livestock industry. The Chinese have little experience with it, but at a maximum feeding level in the Chinese pork industry, China may purchase 2.5 to 3 mmt of US DDGS, which would represent 35% of the US surplus. That would result in a lower price of DDGS for both US and Chinese livestock producers.
Posted by Stu Ellis on 12/15 at 01:37 AM | Permalink
Comments
Posted by: Just Asking or Saying at December 15, 2009 2:02AM
I don’t understand how a new market that uses 35% of available surplus will result in lower price. Did the law of supply and demand get cancelled?
Good question! Apparently the economists found that the ethanol industry had to deal with the surplus DDGS that was not being purchased, and that raised the overall cost of production. When ethanol refineries can find a market that will take the DDGS product and recover their cost, then the surplus will add to the profit. Please review the findings in the research report, about 3/4 of the way through. It should become quite clear.
~Stu
Posted by: Clayton58 at December 15, 2009 8:08AM
I need help. Just how does exporting ddgs help US livestock producers?
Good question! Apparently the economists found that the ethanol industry had to deal with the surplus DDGS that was not being purchased, and that raised the overall cost of production. When ethanol refineries can find a market that will take the DDGS product and recover their cost, then the surplus will add to the profit. Please review the findings in the research report, about 3/4 of the way through. It should become quite clear.