RC: Hello and welcome to ‘Market Talks’- a series of podcasts presented weekly by Argus addressing the events impacting commodities and the energy sector in Brazil and around the world.
I am Renata Cardarelli, editor of the Argus Brazil Grains and Fertilizer publication and in today's episode I will talk to Maria Albuquerque, intern for the Argus Brazil Grains and Fertilizer publication, about the increase of dried distillers' grain - DDG - output in Brazil, boosted by the rising of domestic demand for corn in the country.
RC: Welcome, Maria! First, could you explain to us what is DDG and its advantages?
MA: Hi, Renata, sure! DDG - dried distillers' grain - is the major coproduct of corn ethanol production.
Distilling and fermenting corn results in residual materials that later go through a drying process, resulting in DDG.
DDG is considered a rich-protein fiber commodity which may replace corn, cottonseed, soybean meal and other meals in the animal feed sector, as it offers a market advantage.
That is because DDG necessarily occurs from corn ethanol output, becoming an available coproduct that would not be used for other purposes. By using DDG in the animal fattening process, corn can be left to other sectors, such as exports.
RC: Very interesting, Maria! What is the outlook of DDG output for Brazil in 2024?
MA: Brazil is set to produce 5.2mn metric tonnes of DDG this year, according to investment bank Itau BBA estimates. That volume would represent a 28pc increase from the 4.1mn t in 2023 and would be more than double from the 2.9mn t produced in 2022.
The increased production expected by Itau BBA is also in line with corn ethanol association Unem’s forecast, which sets Brazil's yearly DDG output at around 6.5mn t by 2032.
RC: That is a significant rise! How is it related to the increase in domestic demand for corn?
MA: The recent rise in domestic demand for corn in Brazil is related to the hike in corn ethanol production, which, again, leaves DDG as a coproduct.
Brazil’s 2023-24 corn demand is projected at 84.2mn t, according to national supply company Conab.
That is a 5.8pc increase from the 2022-23 season and a 35pc rise from five years ago in the 2018-19 season. By the end of the year, around 17.3mn t of corn may be shifted for ethanol output, accounting for 20.5pc of the domestic demand. In 2023, demand for corn from the ethanol sector was of 13.4mn t.
The volume of corn destined to ethanol production for 2025 is forecast at 19.4mn t, up by 12pc from 2024.
In the 2023-24 cycle, Brazil produced about 6.3bn liters of corn ethanol, accounting for 19pc of the country’s total ethanol production, according to the sugarcane and bioenergy industry union Unica. That represents an increase of 3.4 percentage points from the 2022-23 season.
In the 2013-14 crop, ten years ago, the share of corn ethanol in the Brazilian ethanol market was less than 1pc.
Itau BBA expects Brazil to produce around 7.8bn l of corn ethanol in 2024-25, which would represent a 25pc hike from the 2023-24 cycle. Production in 2025-26 is set to reach 8.7bn l, an 11pc rise from a year prior.
Currently, Brazil has 21 corn ethanol units in operations, with four new projects set to begin operating until the end of the year, which means volumes may increase even more in the next years.
RC: Interesting! That rise in corn ethanol production will support even more the DDG sector. Does Brazil have enough demand to absorb all this expected DDG production?
MA: Yes, Renata! Brazil has a strong demand for animal feed feedstocks. For example, it is the second largest poultry producer and the major exporter. As for pork, Brazil is the fourth largest producer and exporter, according to association of animal proteins ABPA. The country will also produce a record 10.2mn t of beef in 2024, up by 7.4pc from the prior year, and export up to 3.6mn t, a 18pc increase from 2023 exports, according to Conab.
Brazil produced around 42mn t of animal feed in the first half of 2024, up by 1.4pc from the first half of last year, according to the Brazilian animal feed association Sindiracoes. Forecasts point to a total of 86mn t produced by the end of the year, which would represent a 2.4pc rise from 2023.
Considering only the replacement of corn with DDG, southern Parana state has the biggest potential to become the major domestic market consumer of DDG, according to market participants. Parana would be followed by Sao Paulo, Minas Gerais, Mato Grosso and Goias states.
Furthermore, around 3.5mn t — or 85pc — of Brazil's DDG output in 2023 was targeted for domestic consumption, according to Itau BBA projections. For 2024, expectations point to a domestic consumption of 4.3mn t of DDG, an almost 23pc increase from the previous year.
RC: Interesting, Maria! So, the higher supply of DDG could be an advantage for Brazil, as it would increase the availability of feedstocks for animal feed. Looking to the external market, what is Brazil’s role in that sector?
MA: Brazil's DDG export market is still comparatively new, but already shows a considerable increase. The first Brazilian shipments of DDG started in 2020, with small volumes sent to Turkey and the UK. But exports were suspended in 2021 following the covid-19 pandemic. They resumed in 2022, totaling 279,000t, according to corn ethanol association Unem.
Itau BBA expects DDG exports to reach 744,000t in 2024, a 22pc increase from 600,000t in 2023.
Vietnam was the largest importer of Brazilian DDG last year, accounting for 43pc of shipments. Brazil also sent DDG to China, Indonesia, Thailand, Spain and New Zealand.
Brazil's ministry of agriculture authorized DDG exports to Colombia and Morocco on 10 September. That follows government efforts to globally promote the ethanol chain as an alternative to fossil fuels under energy transition initiatives.
Brazil's agency of exports and investments promotions, Apex Brasil, and Unem firmed a partnership in 2023 to boost DDG shipments by 2025, presenting the product as an efficient high-protein alternative to animal feed production.
RC: So, considering this new export market opening for Brazilian DDG, the country’s importance in this segment is likely to rise in the short term.
Let's keep an eye on the next moves in this new market. Thank you for the information, Maria!
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