PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 21:56 UK, 8th Nov 2012, by Agrimoney.com
Tate & Lyle flags dent from aflatoxin in US corn

Tate & Lyle became one of the first corporates to acknowledge a hit from the disappointing quality, besides quantity, of the US corn crop, saying the quest for supplies free of toxic fungal residues would raise its grains bill.

The UK based multinational, whose markets range from non-sugar sweeteners to industrial starch, said that the elevated levels of aflatoxin in the corn supplied to its US processing operations had forced it to take a discount on some of the feed products they manufacture.

"While aflatoxin does not impact the core end products of the corn wet milling process, such as high fructose corn syrup (HFCS), it tends to concentrate in corn gluten meal and corn gluten feed," Tate said, acknowledging that this can "restrict the end markets" into which the products can be sold.

"The presence of aflatoxin resulted in the sale of a greater proportion of our corn gluten meal and corn gluten feed in lower-value markets in the first few weeks following the harvest."

Although the group said that it was undertaking "significant efforts… to mitigate the impact of aflatoxin", it said measures to "adjust" its corn sourcing, and ensure products meet customers' specification, would mean swallowing a "small" rise costs of the grain.

'Real problem in multiple states'

The comments come amid lingering concerns over the levels of the fungal toxin in US corn encouraged by the summer drought, which promoted crop stress besides significantly weakening yields.

"The irregular flow of grain has confirmed that aflatoxin is a real problem in multiple states," Brian Henry at Benson Quinn Commodities said.

The extent of the toxin in supplies is believed to be being promoted by a willingness among farmers to sell low-quality grain while withholding untainted crop for now, believing higher prices may lie ahead.

Farm officials in Idaho last week urged buyers of corn, and corn products, for feed to "request proof that each load has been tested" to ensure aflatoxin levels do not breach guideline levels, which US health officials have eased restrictions on the blending of affected grain into untainted crop.

'Extremely challenging conditions'

Tate & Lyle added that the high US corn prices, raised by the poor harvest, were prompting "extremely challenging" market conditions for its US ethanol business too, leaving the division running at a loss in the April-to-September half despite "reducing production volumes down to the lowest practical extent".

And in Europe, where the corn crop has also disappointed – with a report from US Department of Agriculture staff in the region overnight trimming the estimate for the harvest to 55.0m tonnes, down 16.7% year on year – high grain costs were set to reduce margins at Tate's corn sweetener operations.

At the North American HFCS operations, the group said it expected demand to stay "robust" in the important Mexican market but, with sugar prices converging with those of corn-based sweeteners, said "the market is likely to remain competitive".

Market reaction

The comments came as the group unveiled a 1.1% rise to £179m in underlying pre-tax profits for the half year, on sales up 5.9% at £1.63bn.

Strong performances in sweeteners divisions in the US as well as in Europe, where relatively high sugar prices are depressing competition with corn-based alternatives, offset the impact of softer conditions in European food ingredients, and the cost of restarting a US plant making the Splenda low-calorie sugar substitute.

The results were termed "in line" by Panmure Gordon analysts, which said "we are trimming our full-year [earnings] forecast modestly" for Tate & Lyle "due to the poor quality of the US corn crop".

The broker restated a "hold" rating on Tate & Lyle shares, as did rival Shore Capital, which said that with the stock "a strong performer in recent weeks... we see little operationally, in the trading performance, to drive the share price".

Tate & Lyle shares closed 0.5% lower at 730p in London.

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