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China's concession on DDGs does not look too painful

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Chinese have a reputation for being canny traders, including when it comes to trade concessions.

 

The country showed only last year, when easing restrictions on Canadian canola exports imposed over disease fears, how to win a double victory from trade concessions.

 

Beijing both improved relations with Canada, the top canola exporter, and eased concerns over a Chinese shortage of the oilseed.

 

A move on Thursday to cut taxes on imports of US distillers grains (DDGs), the feed ingredient, should not hurt too much either.

 

Price competition

 

The move is hardly likely to open the floodgates on imports of US DDGs.

 

Beijing is lifting only the VAT on imports of DDGs which, at 11%, is a small part of the taxation burden.

 

In January, China added import tariffs from the US of up to 53.7%, and anti-subsidy tariffs of 11.2-12%.

 

Imports of DDGs arriving at southern Chinese ports are still around $10 a tonne more expensive than domestic supplies, according to Reuters.

 

Corn stocks slide

 

And it should not matter too much even if a few more cargos do creep in – above the 375,513 tonnes imported in the first nine months of 2017, down 86% year on year.

 

The country’s campaign to use up its huge supplies of corn – the origin of DDGs, from ethanol manufacture, and an alternative in feed too - appear to be bearing fruit.

 

Chinese corn consumption will rise by more than 10m tonnes this year, spurring a drop of 25% in inventories of the grain, according to International Grains Council forecasts,

 

Indeed, corn futures on the Dalian exchange have staged a bit of a revival, on Thursday setting an eighth successive session without decline.

 

Ethanol boost

 

Of course, China’s extra consumption of corn is coming largely from ethanol plants, which means more production domestically of DDGs.

 

(Typically, the equivalent of about one-third of grain used to produce ethanol is returned to the market as DDGs, on US Department of Agriculture estimates.)

 

But given a guaranteed, and huge, domestic ethanol market, assuming plans to roll out E10 come to fruition, and with most of the tariffs on DDGs imports still in place, Chinese biofuel plants may not have to try too hard to make a profit.

 

Beijing, facing threats of US tariffs on Chinese exports, has made a concession, but not one that looks too painful.

 

Indeed, in creating a bit of a safety valve against soaring feed prices, it looks a benefit to a key aim of food market stability.

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