Trade quotas open export market to US ethanol industry

Written by dkoplow Posted: 04/7/2010 10:7 AM EDT

Corn and ethanol markets may make little sense in terms of rationality, but they do provide never-ending entertainment in seeing the new ways people can exploit regulatory interventions for fun and profit.

Dried distillers' grains (DDGs) are a byproduct of US ethanol production increasingly used as a feed additive.  The product is the result of a tiered set of domestic subsidies -- to irrigation, corn production, and ethanol production.  There is lots of it looking for a home due to the subsidy-driven surge in US ethanol production.

One of these new homes is a growing export market in the Chinese livestock industry,  according to a recent article in BusinessWeek.  The main driver?  Not the inherent benefits of the product, but rather Chinese import quotas on US corn.  It would be interesting to know what federal trade program has made DDG export to Egyptian water buffalo economic as well.  E-mail me if you have the answer.

DDGs are not new to the world of subsidy arbitrage and public controversy.  Earlier sagas in the world of DDGs:

-In 2002, the IRS declared the stillage used to make DDGs a "solid waste" having no value, thereby allowing ethanol facilities galore to tap into hundreds of millions of dollars in lucrative tax-exempt bonds.

-In 2009, more evidence that everything goes somewhere pops up via antibiotic residues in the DDGs fed to cattle and (oops) ending up in the cows.  Not surprisingly, industry says they are safe.  FDA is doing more research; time will tell.