Is It Syngenta's Turn to Ruin a Key U.S. Crop?

Months after Monsanto (NYSE: MON  ) nearly brought the U.S. wheat industry to its knees and sent shivers through alfalfa fields after genetically modified strains showed up where they shouldn't and threatened export markets, there's concern that Swiss biotech Syngenta (NYSE: SYT  ) may have done the same thing to the U.S. corn crop. Since mid-November, China has refused acceptance of 665,000 metric tons of corn and byproducts because it tested positive for the presence of MIR162, a genetically modified insecticide not approved for import.

Source: SXC.hu

As with seemingly most commodities, China is the world's largest consumer of corn, and -- though it has a robust domestic market all its own -- it relies on imports to make up its balance. The U.S. supplies it with almost 94% of that deficit, and the country accounts for approximately 40% of U.S. exports of distillers dried grains with solubles (DDGS), a byproduct of corn processing. The total amount rejected, therefore, equates to about 30% of its imports.

With another 2 million tonnes of corn already on its way to China, the possibility that new shipments will get hung up at port and denied entry are great. Syngenta has had applications for GM corn featuring the MIR162 trait rejected before over the last two years, only to reapply again last month, but Beijing has called for every shipment coming in to be tested. 

There are some key differences, though, between the corn situation and that faced by the wheat industry and alfalfa growers. While the U.S. government prohibits genetically modified wheat from being grown and allows GM alfalfa on the market alongside non-GMO varieties, virtually all U.S. corn is genetically modified. Some 86% of the domestic corn supply has had its DNA modified in the lab one way or another.

So what's happening in China is actually a twofold issue. On the one hand, because its domestic corn farmers have enjoyed a bumper crop themselves this year, it's speculated Beijing is trying to protect its local suppliers from U.S. imports. On the other, China and the U.S. are involved in a World Trade Organization squabble with the former seeking dozens of exemptions from the elimination of trade tariffs on billions of dollars worth of technology products and facing accusations it dumped cheap exports on U.S. markets. Rejecting corn shipments at the port is a bit of retaliation.

So far it's not having the desired effect. Corn prices have remained fairly stable, with per bushel prices remaining around $4 for March deliveries. That could be because the corn has found a home in other markets, like Japan, albeit at lower prices. But since the situation is not viewed as dire at the moment because it's seen as tangentially related to trade jibes, it's not likely to sink the corn industry.

Yet corn processors like Archer-Daniels Midland (NYSE: ADM  ) might still be pinched. Last month the largest processor had its takeover of GrainCorp shot down by Australia, which was followed by the EPA proposing the first-ever cuts to requirements for use of corn-based ethanol. It might not be three-strikes-and-you're-out for ADM, but the corn processor is behind on the count.

U.S. corn exports tumbled 17% this week. The shipments to China represent just 15% of U.S. corn exports, the lowest percentage since mid-September. Like ADM, corn itself might not be down for the count, but this highlights once again how fragile our agricultural markets are since being flooded with genetically modified crops. 

Syngenta may not have ruined the U.S. corn crop, but its hand in weakening the market can't be ignored.

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