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CHICAGO, Jan 3 (Reuters) - The price of distillers' dried grain has slid 20 percent in a week as U.S. exporters shied away from selling the corn-based feed grain to its top customer China after Beijing rejected shipments containing an unapproved GMO corn strain.
"Everyone is just nervous. If you load something no one knows if someone is going to take it or not," said Ryan McClanahan, a Kansas City-based trader with Commodity Specialists Co, which supplies DDGs to both domestic and export markets.
"People have just stopped loading vessels, containers domestically so the product is just backing up in the domestic market," McClanahan told Reuters.
So far, Beijing has rejected 2,000 tonnes of U.S. DDGs as well as 545,000 tonnes of corn since November after vessels were found to contain Syngenta's AG's MIR 162 corn, a GMO variety that has been awaiting China's approval for more than two years.
U.S. farmers have been growing the GMO corn variety, which protects plants from insects, since 2011. It is approved for import by all other major corn importers so most grain handlers do not segregate it from other GMO varieties approved by China.
While the amount of DDG and corn rejected is a tiny fraction of China's annual imports - exporters worry it will be tougher to divert Chinese bound distiller's grains to other Asian customers - as DDG is most popular among Chinese feeders.
Many rejected corn shipments have already been resold to other Asian buyers such as South Korea or Japan, the world's top corn importer.
The United States exported 8.2 million tonnes of distillers' dried grain, a by-product from making corn-ethanol, during the 2012/13 marketing year with two-thirds of it sold to China. DDG has grown in popularity among livestock feeders and dairies amid the U.S. ethanol boom, competing with soymeal in livestock diets as a high source of protein.
In West Texas, home to the nation's largest cattle feeders, distillers' dried grain on Friday was selling for $220 a ton, down $50 to $60 since Christmas, when China rejected its first DDG shipments.
Prices for rail-delivered DDGs at feed mills in the Pacific Northwest, were trading at $247 to $248 per ton, a $37 to $48 drop from pre-holiday levels, according to the U.S. Department of Agriculture.
Feed mills, dairies, cattle feeders as well as pork and chicken producers are now looking to switch from pricey soymeal to DDGs but it will take time for nutritionists to reformulate feeds to include more DDGs, cash traders said.
The risk that China would turn away further DDGs shipments will reverberate in the market for months to come as U.S. exporters, fearing financial losses if cargoes are rejected, will remain cautious sellers until MIR 162 is approved.
"Unless a seller of DDGs can get a cargo booked that's sold 'as is', he's going to be very reluctant to sell additional tonnage into China without some assurances," said Dan Basse, president of Chicago-based consultancy AgResource Co.
Chinese analyst JCI said on Friday some Chinese importers of DDGs issued a notice to their customers - mainly feed makers - offering the buyers a choice of either canceling their DDG purchases, or taking the risk that their shipments will be inspected.
The U.S. Grains Council, an industry group that promotes U.S. grain trade, on a conference call earlier this week said that a quick resolution to China's imports of the GMO variety in corn and DDGs was unlikely, traders said.
The Grains Council was unavailable for comment.
Geoff Cooper, an analyst with the Renewable Fuels Association which tracks DDG export data, said he had expected record distiller's grains exports in 2013 - bolstered by strong shipments in November and December.
"Because of this uncertainty in China I think things slowed down in December and that will be reflected in the numbers," Cooper said.