Futures: China Ag Product Tax Fuels Trade War Talk

For folks who had other things to do when the ethanol business was a centerpiece of Al Gore's carbon strategy (he's since repudiated it) DDGs are the solids remaining after the fermentation of whatever your feedstock (usually corn) was.

	Last	Chg
Corn	357-0	-1-2
Soybeans	1011-0	-2-6
Wheat	424-2	-2-4

From Agrimoney:

Is this the start of something worrying?

Some commentators were indeed seeing it as a pre-emptive strike China's increase to eye-watering levels its tariffs on imports of US distillers' grains (DDGs), a feed ingredient manufactured as a byproduct of corn (usually) ethanol output.

Chinese importers of DDGs will, for five years starting on Thursday, have to pay an anti-dumping duty of 42.2-53.7%, plus an 11.2-12% anti-subsidy tax, the country's Ministry of Commerce said.

That represents an increase from rates of 33.8% and 10-10.7% respectively which were introduced in September by China, which believes the workings of Washington policy and subsidies give the US an unfair advantage in DDGs trade.

This at a time when China is trying to erode its own huge stocks of corn (from which DDGs are derived, and which DDGs are used by some livestock producers to replace, although they are more usually seen, having elevated protein levels, as competitive with soymeal).

'Trade war begins'

This move may imply a back-up of DDGs in the US, curtailing domestic corn and soymeal use, unless traders can find alternative markets.

China imported 3.0m tonnes of DDGs in the first 11 months of last year, although that was a drop of 53%, as the country's initial moves to curb imports, and fear of duties, fed through.

(The US Grains Council, which promotes US grain exports, last week flagged success in opening up Irish and Israeli markets to "significant quantities" of DDGs and of corn gluten feed.)

What is more significant is whether Beijing's move represents a step towards the trade dislocations which Donald Trump's election as US president has appeared to make more likely.

"The China-US trade war begins," was how John Clemmow, at Barclays, headlined the story.

Prices ease

How this might play out in ags, of which the US is a big exporter, and China a huge importer, is not clear.

(For instance, China could not, even if it wanted to, meet all its soybean import needs without buying a large chunk from the US.)

If corn investors were worried about China's move, they weren't showing it in early deals, when Chicago's March contract was lower, but by a modest 0.2% to $3.57 ½ a bushel as of 09:40 UK time (03:40 Chicago time)....

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