Coronavirus risk on soymeal may impact DDG: Correction

Corrects export figures in paragraphs 3-4.

A potential drop in global demand for animal feed because of the coronavirus outbreak would push Brazil's soymeal prices down, making it more attractive than dried distillers grains (DDG) to feed buyers.

A co-product of corn-based ethanol, DDG is a low-cost, protein- and fiber-rich feed for cattle, hogs, and poultry. DDG can be an attractive alternative to soymeal for use as animal feed, as it provides high quality fattening at a lower cost.

A prolonged coronavirus outbreak could hit exports of Brazilian soymeal, with higher stockpiles translating into lower prices in the domestic market. Brazil exported 26,600 t/d of soymeal in February, down by 17.6pc from a year earlier.

February 2020 exports were 22pc below January as soymeal from other countries, such as Argentina, were more competitive than Brazilian product.

Despite the spread of the coronavirus, so far there has been no sign of a drop in soymeal demand from China, Europe or the Middle East.

Currently 1t of protein-rich DDG, which has on average 45pc protein content, costs 70pc of the value of 1t soymeal, which typically has 48pc protein content. Soymeal has been sold at R1,300/t ($285/t), while protein-rich DDG has been sold at R900/t, according to market sources.

DDG prices have risen with corn prices because of higher domestic demand for corn and uncertainty amid a delay in the corn winter crop. Meanwhile, soymeal prices have been supported by solid global demand triggered by a higher dollar against the Brazilian real. Values for both feeds are climbing, but if soymeal prices were to change course and narrow their premium to DDG, soymeal may be preferred.

DDG mills also face the challenge of convincing the market that DDG is a high-quality nutrient for animals. There are multiple kinds of DDG produced in Brazil, giving it less recognition in the market than soymeal. For example, fiber-rich DDG has 20-30pc protein content, which is appropriate for bovine livestock and cattle confinement demand but is not enough protein for pork and poultry. Prices for fiber-rich DDG are linked to corn prices as it can replace corn as a feed, and has been sold recently at R600/t, according to market sources.

Brazilian corn ethanol industry association Unem estimates that last year 3.3mn t of corn was processed by the corn-based ethanol industry, resulting in production of 1mn t of DDG.

By Conrado Mazzoni