China Targets US Subsidies

OMAHA (DTN) -- China on Wednesday leveled anti-subsidy duties against distillers grains produced in the United States and exported to China from three large U.S. ethanol companies. It's the latest episode in an ongoing drama involving China imports of U.S. distillers grains that started in 2010.

China outlines in a lengthy investigative document how the Chinese government believes U.S. federal crop insurance and state-level subsidies for corn have created an unfair advantage for both distillers grains with solubles and dried distillers grains produced in the United States and exported to China. This latest action follows China's announcement just last week that it was pursuing anti-dumping claims on U.S. distillers grains as well.

Three of the largest exporters of U.S. distillers grains, Marquis Energy LLC, Poet LLC and Big River Resources LLC, were slapped with varied rates of duties as a result of the investigation.

Henepin, Illinois-based Marquis Energy LLC, a 100-million-gallon ethanol plant, was hit with a 10.5% ad valorem (based on the value of the transaction) subsidy rate; Sioux Falls, South Dakota-based Poet LLC, the largest ethanol producer in the United States, 10%; and Big River Resources LLC, 10.1%.

West Burlington, Iowa-based Big River Resources operates or has ownership in a number of ethanol plants and grain-handling facilities in Iowa, Illinois and Wisconsin.

In addition to what the Chinese believe are the market-distorting effects of crop insurance on corn prices -- and subsequently the price of distillers grains -- the Chinese also point to state-level programs that promote the production of biofuels, corn and distillers grains in Illinois, Indiana, Iowa and South Dakota, as reason for the duties.

The companies were selected from a list of U.S. ethanol producers who voluntarily cooperated with China by providing information about their operations as part of a survey. The companies selected by China account for the largest volume of distillers grains exports to China.

What's more, China's government said in the investigative document that it continues to investigate state programs across the country for potential additional duties.

The list of programs the Chinese said they continue to investigate include additional value-added producer financing; federal ethanol tax credits; small business federal fuel ethanol tax credits; export credit guarantees; foreign market development; market entry and farm loans.

In addition, China continues to look at a variety of additional tax incentive programs for biofuels, jobs creation and even property tax breaks in Alabama, Arkansas, Colorado, Georgia, Hawaii, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Mississippi, Missouri, Montana, North Carolina, North Dakota, Oregon and South Carolina.

The U.S. Grains Council along with two major national ethanol interest groups, the Renewable Fuels Association and Growth Energy, issued a joint statement Wednesday condemning the decision by China.

"We are disappointed that the Ministry of Commerce of the People's Republic of China (MOFCOM) has issued a preliminary determination claiming U.S. dried distiller's grains with or without solubles are being unfairly subsidized by U.S. government entities and have caused injury to the China's DDGS industry," the groups said.

"U.S. DDGS have not caused any injury to China's DDGS producers. This announcement is not a surprise given MOFCOM's treatment of the U.S. DDGS industry last week. U.S. DDGS play an important role in protecting Chinese feed producers and households against unpredictable swings in global commodity prices.

"We will continue cooperating fully with these investigations, and we remain hopeful that MOFCOM will find in its final determination that continued access for U.S. DDGS is in China's interest."

In the nearly 80,000-word document released by the Chinese this week, the government takes aim at a number of subsidies it claims disadvantage the Chinese distillers grains industry.

"The applicant claims, corn is the production of (distillers grains) direct materials, United States government passed the agricultural act and other related laws and regulations provided massive subsidies to the corn industry, including crop insurance, loss of price protection, agricultural risk protection project," the document says in translation.

"Because of the existence of subsidies, United States corn prices [are] highly competitive, reducing the DDG production raw material input costs and raw materials."

The document said ethanol companies that produce distillers grains benefit from U.S. corn subsidies because they have access to the raw materials at cheaper prices. So the Chinese claim the subsidy benefits were passed to the product under investigation.

According to China's government, from 2012 to 2015 the country imported about 1.7 billion tons of distillers grains.

This isn't the first time China has made claims against U.S. distillers grains producers and corn. This is how the China distillers grains drama has played out in the past five years:

-- In December 2010, China's four ethanol producers opened an anti-dumping investigation into imports of distillers grains claiming they cannot produce competitively.

-- On June 29, 2013, China announced it was withdrawing the anti-dumping investigation. While distillers grains exports to China did not immediately increase, cash prices jumped $3 to $5 per ton the next day.

-- On Dec. 21, 2013, China began to reject shiploads of U.S. corn found to contain the MIR 162 biotech trait, more commonly known as Agrisure Viptera produced by Syngenta Ag. Concern mounted it was a matter of time before distillers grains shipments with the trait would be rejected.

-- On Jan. 3, 2014, China rejected about 2,000 tons of distillers grains right before Christmas 2013. Exports of distillers grains came to a screeching halt and prices plummeted.

-- On Jan. 10, 2014, China began accepting shipments of U.S. distillers grains previously in quarantine. Some distillers grains price increases followed. China's small amount of renewed distillers grains buying and a glut of distiller grains on the U.S. market hindered market recovery.

-- On June 13, 2014, rumors circulated China would stop issuing permits for distillers grains imports from the U.S. Prices dropped between $10 and $45 per ton in just one week.

-- On Aug. 1, 2014, China demanded all imports of distillers grains be accompanied by an official letter of certification from the USDA that shipments contained no trace of the MIR 162 trait.

-- On Jan. 2, 2015, rumors that China had finally approved the MIR 162 trait began to circulate and the country was again purchasing distillers grains.

-- Another crash in the market occurred in late April 2015 on fears China may again restrict distillers grains imports because of phytosanitary requirements. The uncertainty caused a small dip in prices to about $174 per ton.

-- On June 19, 2015, China canceled two shipments of distillers grains and considered canceling more. Prices plummeted by as much as $30 in about 10 days in some locations.

-- On Aug. 21, 2015, China announced it would require importers to register information regarding shipments of distillers grains beginning Sept. 1, 2015.

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(AG/CZ)

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