Shares in Tate & Lyle eased after the sweeteners and starches group hardened a caution over levels of fungal toxin in US corn, and cautioned over lower output of its low-calorie sucralose product.

The London-listed group - which had warned last year over the higher occurrence in US corn of aflatoxin, a residue of the aspergillus fungus – said that the impact of the contaminant "was felt particularly" in the October-to-December period.

"We implemented a number of actions, including adjustments to our corn-sourcing programme," Tate & Lyle said, estimating at £7m the hit to operating profits from aflatoxin.

"We will continue to take action to manage the risks posed by aflatoxin during the first half of next financial year up to the new harvest," the group added.

Jump in aflatoxin levels

While Tate & Lyle uses much of its corn for making ethanol, for blending into gasoline, the presence of aflatoxin nonetheless poses a health threat because of its build-up in biofuel manufacturing byproducts, such as corn gluten meal, used in animal feed.

The group has been forced to sell some of its byproducts at a discount because of the levels of aflatoxins which, besides being carcinogenic, attack the liver after ingestion.

According to the US Grains Council, which promotes US corn exports, "livestock may experience reduced feed efficiency or reproduction, and both humans animals' immune systems may be suppressed as a result of ingesting aflatoxins".

Levels of the contaminants were enhanced last year by the unusually dry conditions which stressed corn plants, depressing yields, while allowing aspergillus to thrive.

USGC research found that 14.1% of corn samples from the 2012 crop contained aflatoxin levels above those permitted by US food safety regulations, compared with 2.1% the year before.

US laws require the testing of corn exports for aflatoxins, and ban shipments containing more than 20 parts per billion of the toxin "unless other strict conditions are met", according to the USGC.

Sucralose vs HFCS

Tate & Lyle also revealed that growth of its, non-corn based, low-calorie sucralose sweetener "was not as strong as anticipated" three months ago.

"We now expect sucralose volumes for the full year [to the end of March] to be slightly lower than last year," the group said.

However, the annual North American round of pricing for corn-based sweeteners, such as high fructose corn syrup (HFCS) – which are not affected by aflatoxin – had allowed the group to raise prices a little more than needed to cover higher corn costs.

"After recovering these higher input costs, we achieve d a modest increase in corn sweetener unit margins across out sweetener customers reflecting a continuation of high levels of industry capacity utilisation."

Market reaction

While HFCS consumption is in long-term decline in the US, amid a switch to juices and water from fizzy drinks, and some health claims, the rate of shrinkage has been tempered by the return of some groups to using the sweetener.

Furthermore, HFCS demand is rising in Mexico, a major market for US manufacturers.

Tate & Lyle shares fell 4% in early deals in London before recovering some ground to closed at 804p, down 1.1% on the day.