China Ban Reversal Paves Way for Corn Byproduct

(WSJ) China’s surprise decision to reverse a ban on imports of a genetically modified strain of corn paves the way for the resumption of what was once a booming market for a byproduct fed to Chinese livestock.

The market for distillers dried grains, which is formed when corn is processed into ethanol, was hit when China late last year halted what would eventually be more than one million metric tons of corn and corn-related imports from the U.S. That corn was found to contain MIR 162, an insect-resistant strain of GMO corn made by Swiss seed maker Syngenta A.G . and exported by U.S. producers. The strain was at the time illegal in China, but permitted in Europe and the U.S.

U.S. Agriculture Secretary Tom Vilsack confirmed Wednesday China’s Ministry of Agriculture has approved MIR 162 for import. The Chinese ministry didn’t respond to requests for comment.

U.S. corn exporters may not benefit from China’s latest decision on the matter, analysts say. China is awash in the grain, and early indications are that this year’s corn harvest stands at around 200 million tons, which is roughly the same as last year, they say. The China National Grain and Oils Information Center estimates that some 69 million tons of corn, or about a third of national output, is in state storage.

“There is a lot of corn in China’s grain stockpiles, and the question is in fact whether we should continue to store,” said Hu Huating, an analyst with Zheshang Tianma Futures.

But DDG, as the distilled byproduct is called, could benefit. China doesn’t produce DDG, while the U.S. is the world’s largest exporter of these distillers grains. Chinese DDG imports rose 67% in 2013 to 4 million metric tons, according to customs data.

That was before the MIR 162 ban. But in a sign of how edicts from China’s central government sometimes trickle down through its far-flung coastal outposts, imports of distillers grains continued into this year despite the ban.

U.S. exports of the feedstock to China totaled a record 660,000 tons in July before falling to 540,000 tons in September and then sharply lower to 120,000 tons in October because of the ban, according to customs data. “It took a series of directives from the central government,” to eventually enforce the ban, said Shanghai JC Intelligence Co. analyst Sylvia Shi.

Some suppliers may benefit quickly from the ban reversal. Traders and analysts, including a senior manager at a major grain trading house in Beijing, say several large Chinese grain trading houses in recent months booked at least 600,000 tons of distillers grains in 12 or more shipments for import from the U.S. to be delivered next year.

Source: Wall Street Journal by Chuin Wei Yap