Archer Daniels Midland Co. and Bunge Ltd., two of the world's largest grain traders, are facing a new obstacle in their quest to expand corn exports to China — U.S. farmers.
Six months after China began rejecting shipments of a genetically modified corn, Bunge says it won't take deliveries of the variety developed by Switzerland's Syngenta AG. ADM will test the corn and may reject it as well. Even so, farmers will soon begin planting it this spring, more interested in its high yield for the domestic market than for exports.
Exporters and farmers going in two different directions on GMO corn underscores a new set of challenges faced by international agricultural commodity traders. Even as demand continues to grow in line with the global population, China and other countries have been slower than the U.S. to approve new types of crops amid concerns about food safety and threats to biodiversity from genetically modified organisms, or GMOs.
China's curbs on some modified corn threaten to block millions of tons of imports and in so doing cut into the profits of international trading houses.
"It's a significant issue for major North American traders," said Andrew Russell, a New York-based analyst for Macquarie Group who recommends buying ADM and Bunge shares. "Anything that puts Chinese growth potential at risk is a significant issue."
Traders rerouting shipments originally destined for China to other markets may lose $30 to $50 a ton, said Tim Burrack, an Iowa corn and soybean farmer who's also the former chairman of the U.S. Grains Council's trade committee.
China may also be motivated by wanting to protect domestic corn prices after a record harvest, said Burrack, 62. "When China needs corn imports, they will ramp up the approval process."
White Plains, N.Y.-based Bunge isn't buying the Syngenta GMO corn, an insect-repelling variety called Agrisure Viptera, or another modified variety from the Swiss company called Agrisure Duracade. ADM, the world's largest corn processor, said last month that it won't accept Duracade until the GMO is approved by China and other major importers. And the company remains uncommitted to Viptera.
ADM declined to comment on the potential impact of China's moves beyond the Decatur, Ill.-based company's February statement, in which it said wide-scale planting of GMOs that aren't approved by key importing countries will diminish the competitiveness of U.S. grain and feed exports. Bunge declined to comment on how it will be affected.
ADM shares have fallen 1.5 percent this year while Bunge is 5.3 percent lower. Syngenta has dropped 5.4 percent in Zurich.
CHS Inc. of Inver Grove Heights, the largest U.S. grain cooperative, may decline deliveries of both Duracade and Viptera unless they're specifically for domestic uses, said Lani Jordan, a company spokeswoman. Minnetonka-based agricultural trader Cargill Inc. didn't return messages seeking comment.
Paul Minehart, a Syngenta spokesman, said farmers who grow the company's GMO corn still have options for exports to markets other than China. The company works with Gavilon Grain, a unit of Japanese trader Marubeni Corp., to help export Duracade corn.
As China curtails GMO imports, U.S. growers are seeking to boost yields in the wake of a 34 percent drop in corn prices over the past 12 months. U.S. farm income is forecast to fall 27 percent in 2014, or to the lowest since 2010, according to the U.S. Department of Agriculture.
For farmers, a 'no-brainer'
While it's too early to gauge the acreage of U.S. farms planted with GMO corn, indications are that demand is strong. Already this year, Syngenta has sold out of its Duracade seed variety, part of a broader trend toward modified crops. Major crops genetically engineered with traits to ward off pests, which first became commercially available in 1996, were planted on 170 million acres last year, according to the USDA.
Darron Schoen said planting Viptera on 200 acres of his Missouri farm is a "no-brainer" because it will result in higher yields, help cut insecticide use and reduce the chances of his crop being afflicted by certain kinds of fungi.
Yet that presents another conundrum for farmers and trading houses. Without carefully separating different types of grain, traders run the risk of cross-contamination of non-GMO crops with modified organisms.
"Farmers have to be smarter about planting corn varieties that are not universally accepted," said Dale Durchholz, senior market analyst for AgriVisor in Bloomington, Ill. "It is very difficult to segregate crops that some nations won't buy."
Political considerations also weigh heavily on crop approvals. Even if a GMO passes a risk analysis, a government may consider trade and bilateral relations before agreeing to authorize new varieties for import, Peng Yufa, chief scientist for China's committee on safety of biotechnology, said on March 7.